Academic journal article Contemporary Economic Policy

The Kyoto Protocol, CAFE Standards, and Gasoline Taxes

Academic journal article Contemporary Economic Policy

The Kyoto Protocol, CAFE Standards, and Gasoline Taxes

Article excerpt


The Kyoto Protocol requires the U.S. to reduce the rate of emissions of greenhouse gases to 93% of their 1990 levels by the period 2008-2012. The protocol includes six greenhouse gases, but of these, carbon dioxide (C[O.sub.2]) is the most important. In 1995, energy consumption in the U.S. was 91 quadrillion Btu per year. Transportation accounted for 27% of energy consumption (EIA, 1997a, pp. 101-102) and 35% of C[O.sub.2] emissions in 1995 (Davis, 1997, p. 7-2). Of the energy used in the transportation sector, light-duty vehicles (passenger cars and light trucks) accounted for 59% of the total energy consumed (EIA, 1997a, p. 111). C[O.sub.2] reductions necessary to meet Kyoto Protocol objectives can come equally from all sectors, or in differential amounts depending on marginal costs of abatement. This paper analyzes policies that will allow light-duty vehicles to reduce C[O.sub.2] emissions to 93% of their 1990 levels by 2010. It evaluates two policies: Corporate Average Fuel Economy (CAFE) standards and gasoline taxes.


A. CAFE Standard

The CAFE standard requires automotive manufacturers to meet sales-weighted minimum fuel efficiency standards for each model year on light-duty vehicles sold in the U.S. The standard for passenger cars was introduced in 1978 with a sales-weighted fuel efficiency minimum of 18 miles per gallon (mpg). In that same year, domestic manufacturers produced new cars with an average fuel efficiency of 18.7 mpg. Imported cars were a more impressive 27.3 mpg. The standard slowly increased over the next 10 years, reaching 27.5 mpg in 1990 (it had previously reached 27.5 mpg in 1985, but was reduced to 26.0 mpg the following year). The CAFE standard for passenger cars has remained at 27.5 mpg to the present (AAMA, 1997, p. 80).

The standard for light trucks was introduced in 1979 at 17.2 mpg for two-wheel drive vehicles and 15.8 mpg for four-wheel drive vehicles. Two-wheel and four-wheel drive vehicles were combined to one standard in 1992 at 20.2 mpg, and the standard has increased to 20.7 mpg today (AAMA, 1997, p. 81). When the standard for light trucks commenced in 1979, it only applied to light trucks with a gross vehicle weight (GVW) less than 6,000 lbs. In 1980, the standard expanded to include all light trucks up to 8,500 lbs GVW. Typically, light trucks refer to Class I and II trucks up to 10,000 lbs, but the heavier trucks are not regulated for fuel efficiency or emission standards. Light trucks greater than 8,500 GVW include some of the larger Dodge Rams, Ford Econolines, Ford F and C/K series pickups, GMC Sierra pickups, GMC Suburbans, and GMC Vanduras (Ward's Communications, 1996, pp. 245-252). Larger light trucks with GVW from 8,500 to 10,000 lbs remain unregulated by CAFE and emission standards.

Fines for violating CAFE standards are $55/mpg per vehicle sold. Manufacturers can bank and borrow fuel economy surpluses and deficits for up to three years. For example, Ford Motor Company's sales-weighted fuel economy in 1994 for their domestically produced light trucks was 21 mpg, 0.5 mpg above the average. In the next two years their fuel economy averages exceeded the standard by 0.2 mpg and 0.1 mpg. However, in 1997, Ford's sales weighted fuel economy average dropped to 19.9 mpg, 0.8 mpg below the standard. By carrying forward their surpluses from the previous three years, 0.5, 0.2, and 0.1, Ford is still in compliance in 1997. However, if they do not meet the standard in 1998, they will be fined $5.50 per 0.1 mpg that they fall short of the standard unless they file a carryback plan to demonstrate that they anticipate earning credits in future model years to offset current deficits (NHTSA, 1998). With a domestic light truck sales fleet of approximately 2 million vehicles, this is an $11 million fine for each 0.1 mpg they fall short of 20.7 mpg.

B. Gasoline Taxes

Consumers pay local, state, and federal gasoline taxes at the pump. …

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