Fuel Economy Standards Could Reduce Transportation Funds by $57 Billion

May 03, 2012

Proposed fuel economy standards could result in a $57 billion drop in tax revenue that goes to federal transportation funds, says the Congressional Budget Office.

New CAFE standards (or corporate average fuel economy standards), proposed by the National Highway Traffic Safety Administration and the Environmental Protection Agency in 2011, would tighten fuel economy standards for light-duty vehicles manufactured from 2017 to 2025.

(Photo courtesy of MNDOT)

That includes cars, sport utility vehicles, pickup trucks, minivans and crossover utility vehicles.

By 2025, the proposed standards are expected to raise the average fuel economy of the new vehicle fleet from 34.1 mpg - the average anticipated for 2016 and beyond under current standards - to 49.6 mpg. The proposed rule also would require gradual reductions in greenhouse gas emissions from light-duty vehicles, which would be accomplished primarily through reduced fuel consumption.

In a recently released report, the Congressional Budget Office estimates that the proposed CAFE standards would gradually lower gasoline tax revenues, eventually causing them to fall by 21%.

CBO estimates that such a decrease would result in a $57 billion drop in revenues credited to the Highway Trust Fund by 2022, a 13% reduction. The full 21% reduction in gasoline tax revenues, however, would not occur for about 30 years.

Policymakers could consider several options to avoid adding to a shortfall in the Highway Trust Fund, including the following:

- Reducing spending on highways and mass transit
- Transferring additional money from the Treasury's general fund to the Highway Trust Fund
- Increasing the gasoline tax or raise revenue from other sources to provide receipts to the trust fund

By 2040, according to EPA's estimates, the proposed standards would reduce annual gasoline consumption by 25% -from 160 billion gallons without the proposed standards to 119 billion gallons with the proposed standards. By that time, nearly all light-duty vehicles on the road either will have been manufactured after 2025, and thus be subject to the 49.6 mpg standard.

To read the full report from the CBO, click here.