Effect of Improving Vehicle Fuel Efficiency on Fuel Tax Revenue and Greenhouse Gas Emissions

Abstract

Vehicle fuel economy improvement has proved to be one of the most effective policies in controlling gasoline demand and greenhouse gas emissions in the transportation sector. However, such improvement also results in the decrease of fuel tax revenue, the main funding source for building and maintaining the U.S. transportation infrastructure. Conversely, fuel efficiency improvement reduces the marginal and average cost of travel, thus encouraging drivers to drive more, and that in turn increases gasoline consumption. The objective of this study was to estimate the potential loss of fuel tax revenue and greenhouse gas emissions, dependents of fuel consumption, that resulted from the fuel efficiency improvement. Accordingly, fuel consumption was modeled as a system of equations consisting of vehicle miles traveled and fuel efficiency (in mpg) as two explanatory variables. The model was estimated by the three-stage least squares method, with annual time-series data for Washington State over the period from 1976 to 2011. According to the results, Washington State will have a $106 million loss in revenue and an 8.7% reduction in emissions of carbon dioxide (CO₂) in 2031.

Get full access to this article

View all access options for this article.

References

Davis

S. C.

, Diegel

S. W.

, and Boundy

R. G.

. Transportation Energy Data Book, 33rd ed. ORNL-6984. Oak Ridge National Laboratory, Oak Ridge, Tenn., 2014. http://cta.ornl.gov/data/tedb33/Edition33_Full_Doc.pdf.

, and Sauer

. Comparison of Passenger Vehicle Fuel Economy and GHG Emission Standards Around the World. Report for the Pew Center on Global Climate Change, Arlington, Va., 2004.

Huang

, Lee

, Lovellette

, and Gomez-Ibanez

. Transportation Revenue Options: Infrastructure, Emissions and Congestion. Discussion Paper 2010-13. Energy Technology Innovation Policy Series. Belfer Center for Science and International Affairs, John F. Kennedy School of Government, Harvard University, Cambridge, Mass., 2010.

Small

K. A.

, and Van Dender

. Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect. Energy Journal, Vol. 28, No. 1, 2007, pp. 25–52.

Greene

D. L.

Vehicle Use and Fuel Economy: How Big Is the “Rebound” Effect?

Energy Journal Vol. 13, No. 1, 1992, pp. 117–143.

Jones

C. T.

Another Look at U.S. Passenger Vehicle Use and the “Rebound” Effect from Improved Fuel Efficiency. The Energy Journal, Vol. 14, No. 4, 1993, pp. 99–110.

Schimek

Gasoline and Travel Demand Models Using Time Series and Cross-Section Data from the United States. In Transportation Research Record 1558, TRB, National Research Council, Washington, D.C., 1996, pp. 83–89.

Mayo

J. W.

, and Mathis

J. E.

. The Effectiveness of Mandatory Fuel Efficiency Standards in Reducing the Demand for Gasoline. Applied Economics, Vol. 20, No. 2, 1988, pp. 211–219.

De Jong

, and Gunn

. Recent Evidence on Car Cost and Time Elasticities of Travel Demand in Europe. Journal of Transport Economics and Policy, Vol. 35, No. 2, 2001, pp. 137–160.

10.

Graham

D. J.

, and Glaister

. The Demand for Automobile Fuel: A Survey of Elasticities. Journal of Transport Economics and Policy, Vol. 36, No. 1, 2002, pp. 1–26.

11.

Goodwin

, Dargay

, and Hanly

. Elasticities of Road Traffic and Fuel Consumption with Respect to Price and Income: A Review. Transport Reviews, Vol. 24, No. 3, 2004, pp. 275–292.

12.

Washington State Transportation Economic and Revenue Forecast, Vol. 2. Transportation Revenue Forecast Council, Olympia, Wash., Nov. 2012.

13.

Washington State Economic and Revenue Forecast, Vol. 35, No. 4. Transportation Economic and Revenue Forecast Council, Olympia, Wash., Nov. 2012.

14.

Blair

R. D.

, Kaserman

D. L.

, and Tepel

R. C.

. The Impact of Improved Mileage on Gasoline Consumption. Economic Inquiry, Vol. 22, No. 2, 1984, pp. 209–217.

15.

Sorrell

, Dimitropoulos

, and Sommerville

. Empirical Estimates of the Direct Rebound Effect: A Review. Energy Policy, Vol. 37, 2009, 1356–1371.

16.

Binswanger

Technological Progress and Sustainable Development: What About the Rebound Effect?

Ecological Economics Vol. 36, No. 1, 2001, pp. 119–132.

17.

Harvey

The Econometric Analysis of Time Series. MIT Press, Cambridge, Mass., 1990.

18.

Granger

C. W. J.

, and Newbold

. Forecasting Economic Time Series, 2nd ed. Academic Press, New York, 1986.

19.

Kennedy

A Guide to Econometrics, 5th ed. MIT Press, Cambridge, Mass., 2003.

20.

Babula

, and Corey

. U.S. Canned Tuna Supply and Demand. Journal of International Food and Agribusiness Marketing, Vol. 16, No. 2, 2004, pp. 145–164.

21.

Dickey

D. A.

, and Fuller

W. A.

. Distribution of the Estimators for Auto-Regressive Time Series with Unit Roots. Journal of the American Statistical Association, Vol. 74, 1979, pp. 427–431.

22.

Heaslip

, Bosworth

, Barnes

, Soltani-Sobh

A. S.

, Thomas

, and Zong

. Effects of Natural Gas Vehicles and Fuel Prices on Key Transportation Economic Metrics. WA-RD 829.1 Washington State Department of Transportation, Olympia, June 2014.

23.

Haughton

, and Sarkar

. Gasoline Tax as a Corrective Tax: Estimates for the United States, 1970–1991. Energy Journal, Vol. 17, No. 2, 1996, pp. 103–126.

24.

Wirl

The Economics of Conservation Programs. Kluwer, Dordrecht, Netherlands, 1997.

25.

Morrow

W. R.

, Gallagher

K. S.

, Collantes

, and Lee

. Analysis of Policies to Reduce Oil Consumption and Greenhouse-Gas Emissions from the U.S. Transportation Sector. Energy Policy, Vol. 38, No. 3, 2010, pp. 1305–1320.

26.

Energy Information Administration, U.S. Department of Energy. Annual Energy Outlook. http://www.eia.gov/totalenergy/data/annual/index.cfm.