Reducing Fuel Consumption: Increase Vehicle Efficiency or Reduce Driving?

NYT Economic Scene columnist Eduardo Porter makes a strong case against the new 54.5 mpg by 2025 fuel efficiency standards, arguing instead for higher gas taxes. Critiquing the piece, Reuter's economics blogger, Felix Salmon calls for both measures.
September 15, 2012, 5am PDT | Irvin Dawid
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Porter makes a strong case for increasing gas taxes. "[T]hese (efficiency) improvements come at a high cost for drivers, automakers and society in general. They could be achieved much more cheaply by raising taxes on gasoline to a level comparable to that of pretty much every other industrialized nation."

Salmon, after first forcing a correction to Porter's analogy of the mileage comparisons of a Ford Fiesta sold in the U.S. compared to one in Britain (noted at end of article), makes an equally strong case for applying both higher fuel standards and fuel taxes.

"Porter's central point is absolutely right: there are two ways to reduce the amount of fuel that people use. The first is to make cars more efficient; the second is to reduce the number of miles that people drive. [Porter notes that higher fuel taxes would also result in higher fuel efficiency]

Higher gasoline taxes work on both fronts, while higher fuel-economy standards only work on the first. Indeed, at the margin they increase the number of miles people drive: since more efficient cars cost less to drive per mile, people drive further when they get more efficient cars.

Porter is also right that in countries with higher gas taxes, fuel economy tends to be much higher. But he's not necessarily right that the higher gas taxes alone are responsible. Porter implies that the US only has fuel-economy standards just because "a tax on gasoline doesn't stand a chance" of being passed. But the fact is that even countries with very high gas taxes have fuel-economy standards as well. And, guess what, they're significantly tougher than ours, and they always have been.

The fact is that the US has pretty much the lowest fuel-economy standards in the developed world, and it still will in 2025, even after the new standards are fully phased in. If US carmakers want to be internationally competitive, they're going to need to develop more fuel-efficient cars anyway, no matter what happens in the US."

Not stated by either writer is the near-insolvency of the Highway Trust Fund - attributed largely to gas taxes that have not increased since 1993.

Thanks to Charles Komanoff

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Published on Wednesday, September 12, 2012 in The New York Times - Business Day
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