Abstract: France, Germany, and Sweden link vehicle taxes to the carbon dioxide (CO2) emissions rates of passenger vehicles. Based on new vehicle registration data from 2005–2010, a vehicle’s tax is negatively correlated with its registrations. The effect is somewhat stronger in France than in Germany and Sweden. Taking advantage of the theoretical equivalence between an emissions rate standard and a CO2-based emissions rate tax, we estimate the effect on manufacturers’ profits of reducing emissions rates. For France, a decrease of 5 grams of CO2 per kilometer reduces profits by 24 euros per vehicle. We find considerable heterogeneity across manufactures and countries.

Abstract: Using disaggregated confidential household data, we estimate spatial variation in household-level gasoline price elasticities and the welfare effects of gasoline taxes. A novel approach allows us to model a discrete-continuous household choice of vehicle bundles, while disaggregating the choice set and including vehicle-specific fixed effects and unobserved consumer heterogeneity. The mean elasticity of demand for gasoline is -0.67, but with tremendous variation across location and income. We find that rural households have 30 percent more negative welfare impacts than urban households from gasoline taxes. Finally, we explore different policies that can help to mitigate welfare inequalities due to these taxes.

Abstract: This study explores the role of market power on the cost-effectiveness of policies to address fuel consumption. Market power gives manufacturers an incentive to under- (over-) provide fuel economy in classes whose consumers, on average, value it less (more) than in others. Adding a second market failure in consumer valuation of fuel economy, a policy trade-off emerges. Minimum standards can address distortions from price discrimination but, unlike average standards, do not provide broad-based incentives for improving fuel economy. Increasing fuel prices raises demand for fuel economy but exacerbates undervaluation and incentives for price discrimination. A combination policy may be preferred. For modelers of fuel economy policy, failure to capture consumer heterogeneity in preferences for fuel economy can lead to significant errors in predicting the distribution of effort in complying with regulation, as well as the calculation and distribution of the benefits.

Abstract: This paper develops and parameterizes an overarching analytical framework to estimate thewelfare effects of energy efficiency standards applied to automobiles and electricity-using durables. Wealso compare standards with sectoral and economywide pricing policies. The model captures a wide rangeof externalities and preexisting energy policies, and it allows for possible “misperceptions”—marketfailures that cause underinvestment in energy efficiency.Automobile fuel economy standards are not part of the first-best policy to reduce gasoline: fueltaxes are always superior because they reduce the externalities related to vehicle miles traveled. For thepower sector, potential welfare gains from supplementing pricing instruments with efficiency standardsare small at best. If pricing instruments are not feasible, a large misperceptions failure is required tojustify efficiency standards, and even in this case the optimal reductions in fuel and electricity use arerelatively modest. Reducing economywide carbon dioxide emissions through regulatory packages(combining efficiency and emissions standards) involves much higher costs than pricing instruments.

Abstract: This paper discusses fuel economy regulations in the United States and other countries. We first describe how these programs affect fuel use and other dimensions of the vehicle fleet. We then review different methodologies for assessing the costs of fuel economy regulations and discuss the policy implications of the results. We also compare the welfare effects of fuel economy standards with those of fuel taxes and assess whether these two policies complement each other. Finally, we review arguments in favor of a “feebate” system, which imposes fees on inefficient vehicles and provides rebates for efficientvehicles.

Abstract: Most developed and developing country governments levy taxes on gasoline and diesel fuel used by motor vehicles. However, outside of the United States and Europe, automobile and heavy truckexternalities have not been quantified, so policymakers have little guidance on whether prevailing tax rates are anywhere close to their corrective levels. This paper develops a general approach for roughlygauging the magnitude of motor vehicle externalities, and hence the corrective tax on gasoline and diesel, for individual countries, based on pooling local data sources with extrapolations from U.S. data. The analysis is illustrated for the case of Chile, though it could be readily applied to other countries with appropriate data collection.

Abstract: This paper provides an updated assessment of economically efficient taxes on gasoline (used by light-duty vehicles) and diesel (used by heavy-duty trucks) to address various highway externalities in the United States. The (second-best) corrective fuel taxes are estimated, and we discuss the implications of fuel economy regulations and prospective (nationwide) controls on carbon emissions. We also examine how optimal fuel taxes depend on how they interact with the broader fiscal system. Our baseline estimates of the corrective taxes on gasoline and diesel are $1.23 and $1.15 per gallon, respectively. However, optimal fuel taxes can be substantially higher if extra revenues are used to reduce distortionary income taxes, or substantially lower if revenues are not used to enhance economic efficiency.

Abstract: Although fuel taxes are a practical means of curbing vehicular air pollution, congestion, and accidents in developing countries—all of which are typically major problems—they are often opposed on distributional grounds. Yet few studies have investigated fuel tax incidence in a developing country context. We use household survey data and income-outcome coefficients to analyze fuel tax incidence inCosta Rica. We find that the effect of a 10 percent fuel price hike through direct spending on gasoline would be progressive, its effect through spending on diesel—both directly and via bus transportation—would be regressive (mainly because poorer households rely heavily on buses), and its effect through spending on goods other than fuel and bus transportation would be relatively small, albeit regressive.Finally, we find that although the overall effect of a 10 percent fuel price hike through all types of direct and indirect spending would be slightly regressive, the magnitude of this combined effect would be modest. We conclude that distributional concerns need not rule out using fuel taxes to address pressing public health and safety problems, particularly if gasoline and diesel taxes can be differentiated.

Abstract: Although fuel taxes are a practical means of curbing vehicular air pollution, congestion, and accidents in developing countries—all of which are typically major problems—they are often opposed ondistributional grounds. Yet few studies have investigated fuel tax incidence in a developing country context. We use household survey data and income-outcome coefficients to analyze fuel tax incidence inCosta Rica. We find that the effect of a 10 percent fuel price hike through direct spending on gasoline would be progressive, its effect through spending on diesel—both directly and via bus transportation—would be regressive (mainly because poorer households rely heavily on buses), and its effect through spending on goods other than fuel and bus transportation would be relatively small, albeit regressive.Finally, we find that although the overall effect of a 10 percent fuel price hike through all types of direct and indirect spending would be slightly regressive, the magnitude of this combined effect would be modest. We conclude that distributional concerns need not rule out using fuel taxes to address pressing public health and safety problems, particularly if gasoline and diesel taxes can be differentiated.

Abstract: This paper reviews theoretical and empirical literature on the measurement of the major automobile externalities, namely local pollution, global pollution, oil dependence, traffic congestion and traffic accidents. It then dicusses the rationale for traditional policies to address these externalities, including fuel taxes, fuel economy standards, emissions standards and related policies. Finally, it discusses emerging, more finely-tuned policies, such as congestion pricing and pay-as-you-drive insurance, that have become feasible with advances in electronic metering technology.

Abstract: This paper develops and implements an analytical framework for estimating optimal taxes on thefuel use and mileage of heavy-duty trucks, accounting for external costs from congestion, accidents,pavement damage, noise, energy security, and local and global pollution. The analysis allows forendogenous fuel economy, increased auto travel (and externalities) in response to reduced truckcongestion, and it distinguishes driving by truck type and region. We estimate the optimal (second-best)diesel fuel tax is $1.12 per gallon, and implementing it increases welfare by $1.34 billion per annum.However, optimizing over both fuel and mileage taxes, and differentiating mileage taxes by vehicle typeand region, yields progressively higher welfare gains. The most efficient tax structure involves a dieselfuel tax of 69 cents per gallon and charges on trucks that vary between 7 and 20 cents per mile;implementing this tax structure yields welfare gains of $2.06 billion.

Abstract: This paper discusses the appropriate balance between traditional gasoline taxes and charging bythe mile, focusing mainly on economic efficiency considerations. We begin with a brief discussion of thefive major passenger vehicle externalities of concern - local pollution, greenhouse warming, oildependency, traffic congestion, and traffic accidents - summarizing evidence on the dollar value of theexternalities for passenger vehicles in the United States. We then discuss how much fuel taxation mightbe justified to account for these externalities, as well as how much taxation might be appropriate on fiscalgrounds, assuming per-mile charges are unavailable. Finally, we discuss to what extent fuel taxationshould be replaced with per-mile charges.

Abstract: Gasoline taxes are widely perceived as the most efficient instrument for reducing gasolineconsumption because they exploit all behavioral responses for reducing fuel use, including reduceddriving and improved fuel economy. At present, however, higher fuel taxes are viewed as a politicalnonstarter.Pay-as-you-drive (PAYD) auto insurance, which involves replacing existing lump-sum premiumswith premiums that vary in proportion to miles driven, should be more practical, since they do not raisedriving costs for the average motorist. We show that when impacts on a broad range of motor vehicleexternalities are considered, PAYD also induces significantly higher welfare gains than comparablegasoline tax increases, for fuel reductions below 9%. The reason is that under PAYD, all of the reductionin fuel use, rather than just a fraction, comes from reduced driving; this produces a substantial additionalefficiency gain because mileage-related external costs (especially congestion and accidents) are relativelylarge in magnitude.