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Fuel Efficiency Up! Revenue Down?

Finalizing a deal between major auto manufacturers and federal officials, the two sides announced new fuel-efficiency standards for vehicles beginning in 2012. The goal is to increase the fuel efficiency of cars and light trucks sold in the United States, thereby lowering the country’s emissions from the personal transportation sector.

The changes have been long overdue. While engine-efficiency technology has continued to improve, the country’s fuel-efficiency standards have not followed suit. The standard for cars has been stuck at 27.5 mpg since 1990, while the light-truck standard rose from 20.0 mpg in 1990 to just 23.5 mpg in 2010. Due to these minimal increases the country’s average fuel efficiency has barely risen in the past two decades. 

In the case of today’s announcement, the increases to 39.5 mpg for cars and 29.8 mpg for light trucks—all by 2016—mark a drastic about face. And there are quite a few reasons to like the change. First, it will reduce auto-sourced environmental pollutants. Second, it will reduce both our national consumption of oil and purchases of foreign oil. Third, it will save American households a projected $3,000 in gas purchases over the life of a new vehicle.

However, one story missed was the CAFE standard’s effects on our transportation revenues. As we’ve written about many times, our highway and transit trust funds rely on gas tax receipts. The new fuel-efficiency standards will mean fewer gas-guzzling cars, less gas tax revenue, and in the end less money to invest in our nation’s roads and rails. If the U.S. car fleet shifts its fuel economy from 22.5 mpg to even just 30.0 mpg, that will reduce gas tax revenues by 25 percent.

Having already required a general-fund bailout the past two fiscal years, the Highway Trust Fund’s solvency doesn't need more bad news. But there’s no way that, assuming gas taxes hold constant, the increasing CAFE standards won’t make our funding woes worse. So how will we move forward to fund our national surface transportation system? House Transportation and Infrastructure Chairman Oberstar recently introduced a $450 billion bill to reform the surface transportation program over six years, an enormous increase over the current authorizing legislationand we already can’t afford that. Something’s got to give, whether it’s a scaled-back investment program, new revenue sources, or just a plain gas tax increase.

What’s not in question is that our clearer skies are going to force the U.S. Congress to make some tough funding decisions.

(Flickr photo credit: Canis Major)