CAFE standards and gas taxes are not the only choices
My own take on CAFE standards is roughly Kevin Drum’s: There’s no need to think of CAFE standards and gas taxes as an either/or choice. And you can probably get more done with both than with either alone.
In fact, there’s reason to believe that gas taxes wouldn’t raise efficiency as effectively as CAFE standards. Consumers typically undervalue the benefits of fuel efficiency — they only take a few years worth of gas savings into account when buying a car, even if they plan on holding onto the car for much longer. That’s not necessarily rational, but it’s apparently human (or at least American) nature. And it means that fuel taxes probably would need to be really steep to get the same result as CAFE standards.
Now, as long as we’re dreaming about conservation policy, there are two ideas that get much less attention than either gas taxes or CAFE standards, but that could be far more effective than either.
The first idea is to change the way we pay for car insurance. Yes, that’s right, car insurance. At least until the recent gas price run-up, people typically paid more each year for car insurance than for gas. But drivers pay for insurance in one or two big payments per year, rather than mile-by-mile. Which makes typical car insurance kind of like dining at an all-you-can-eat restaurant: You’ve already paid, so why not gorge yourself?
But a pay-as-you-drive car insurance system (or PAYD for short) would automatically create incentives to drive less. PAYD would effectively double the marginal cost of driving a mile, which would curtail driving as much as a gas tax of $2 per gallon or thereabouts. But overall, the average driver doesn’t pay any more than under the current all-you-can-drive system. There are technical and logistical problems with the idea, of course — but those are no greater than the political obstacles to a $2 per gallon gas tax hike.
A second policy option that should get more attention is feebates. The basic idea: People who buy gas guzzlers pay a fee that is automatically remitted to people who buy more efficient vehicles. It’s not a tax, exactly, since the government doesn’t get any revenue from the system. But it does create the potential for a virtuous cycle, in which car manufacturers offer ever more efficient vehicles that can take advantage of the biggest feebates. Car manufacturers will undoubtedly hate this idea, just as they hate anything that impinges on their current business model; and the idea also has some of the same unintended consequences as CAFE standards, because it makes driving a mile cheaper than it would otherwise be. But while we’re dreaming our dreams for an ideal fuel-saving policy, it’s an idea that would be every bit as effective as CAFE — possibly moreso — while giving a little more flexibility to manufacturers to design the models they think people will buy.