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When the CAFE standards were raised in July to mandate that by 2025, the fleet-wide average fuel economy of cars sold in America will be at least 54.5 miles per gallon, it was estimated that the program will save $1.7 Trillion at the pump over the life of the program. It was also estimated that the new CAFE standards will save 12 billion barrels of oil, eliminate 6 billion metric tons of C02, and that a car purchases in 2025 will save a family over $8,200 in fuel costs compared with an average vehicle produced in 2010.

Unfortunately, not only is this solution not the most economically efficient way of promoting fuel efficiency and environmental conservation – estimates of the CAFE standards benefits do not include the very real problem of rebound effects.

When a motorist purchases a greener car, say a Prius, that delivers 50 mpg in the city, they will more likely than not be apt to travel more often as their cost of driving is now cheaper than it had been previously with a less-efficient car. The same rebound effects are observed with energy efficient lighting, appliances, and other consumer goods. According to the IEA and the DOE’s Oak Ridge National Laboratory, the rebound effect increase in miles driven in more efficient cars lies from 10 to as much as 30%.

Government mandates (such as CAFE) that do not directly increase the marginal cost of driving do not do as much as they can to promote saving gas while reducing emissions. By not directly influencing consumers to drive less (which can promote use of public transportation, reduce congestion and related environmental benefits), CAFE standards do not do all that is possible to promote more efficient transportation.

By increasing the tax on gasoline, driving would become more expensive. This would create a larger market for more efficient cars plus influencing less driving. Care would need to be taken to tier the tax in such a way that those who depend on fuel for their livelihoods (truckers, sales reps, etc.) are not disproportionately burdened by the increase.

Politicians would never risk losing their campaigns over the issue of increased taxation, especially involving gasoline. Regrettably, American consumers are left with a program (CAFE) that is not as environmentally and economically beneficial as it could be.

What do you think? Please comment.

Earthgarage – Greener Car. Fatter Wallet.