T he primary motivation for current proposals to reduce gasoline consumption is to lower two external costs related to that consumption: the United States' dependence on oil and its carbon emissions. (External costs are ones whose full weight is borne by society at large rather than by an individual. Thus, individuals have less incentive to take those costs into account when making decisions.) At the same time, tightening corporate average fuel economy standards, raising the federal gasoline tax, or creating a cap-and-trade program would have implications for other external costs that result from driving--such as emissions of air pollutants besides carbon dioxide, traffic congestion, and the need for highway construction and maintenance. The three policy options examined in this study would have indirect effects on those factors, which would result mainly from changes in the number of vehicle miles traveled (VMTs).
 

Emissions of Regulated Air Pollutants

The Environmental Protection Agency (EPA) regulates three air pollutants emitted by passenger vehicles: carbon monoxide, nitrogen oxides, and hydrocarbons (also known as volatile organic compounds). Carbon monoxide can irritate people's respiratory tracts and contribute to coronary damage. Nitrogen oxides and hydrocarbons are precursors to ground-level ozone (smog), which is also a respiratory irritant. EPA sets maximum emission rates (in grams per mile) for those three pollutants that vehicles are required to meet. Pollution-control equipment installed on vehicles is intended to prevent emissions from exceeding those rates.⁽¹⁾ As a result, improving the fuel economy of vehicles does not imply lower emission rates of those pollutants.⁽²⁾ (However, those emissions will decline starting in a few years when stricter EPA standards go into effect.)⁽³⁾

Although not altering emission rates, higher CAFE standards could indirectly affect the total amount of those vehicle emissions.⁽⁴⁾ By lowering the cost of operating a vehicle, higher CAFE standards would increase vehicle miles traveled--by roughly 2 percent for each 10 percent increase in CAFE stringency.⁽⁵⁾ More driving would mean more tailpipe emissions.

Gauging the total effect on emissions of those three pollutants, however, also requires accounting for changes in emissions that occur during the production and delivery of gasoline. Since an increase in CAFE standards would decrease gasoline consumption, it would reduce production- and delivery-related emissions. A life-cycle analysis of automobile-related air pollutants indicates that those fuel-production stages (from extraction of raw materials to delivery of the fuel to the final user) generate emissions of nitrogen oxides and volatile organic compounds "roughly equal to the emissions resulting from the lifetime of the vehicle."⁽⁶⁾ On net, therefore, higher CAFE standards would reduce total emissions of nitrogen oxides and volatile organic compounds, because decreases in production- and delivery-related emissions are estimated to outweigh the increase in tailpipe emissions from greater VMTs. For carbon monoxide, by contrast, fuel production and delivery generate comparatively small amounts of emissions.⁽⁷⁾ Thus, an increase in CAFE standards would be expected to lead to a small rise in carbon monoxide emissions because of the rise in VMTs.

As with tighter CAFE standards, a higher gasoline tax or a cap-and-trade program would induce long-term increases in vehicles' fuel economy. Although that would not necessarily lower tailpipe emission rates of the three regulated pollutants, it would lower the total amount of those pollutants emitted, both by reducing production- and delivery-related emissions and by discouraging VMTs.
 

Congestion

A recent comparison of the external costs of driving found that costs associated with traffic congestion (such as lost time and productivity and delays in deliveries) exceed other external costs, including those from emissions of regulated pollutants and carbon dioxide and from motor vehicle accidents. That study used a cost estimate for congestion of 5 cents per mile, or $1 per gallon of gasoline.⁽⁸⁾ Researchers have estimated congestion costs at between 1.2 cents and 14.8 cents per mile, or between $0.24 and $2.96 per gallon.⁽⁹⁾

All three policies discussed in this study would affect congestion indirectly by altering vehicle miles traveled: a higher gasoline tax or a cap-and-trade program would tend to lower VMTs (by raising gasoline prices), whereas tighter CAFE standards would tend to increase them (by lowering the operating costs of vehicles). None of those policies would be expected to have a big impact on the level of congestion. But given the large potential costs associated with congestion, even small policy-induced changes in the amount of driving could have significant economic costs.

None of those policies is well suited to discourage traffic congestion, which is primarily a problem of peak-period demand. The decline in VMTs from a gasoline-tax increase or a cap-and-trade program would not necessarily occur mainly during peak periods. Moreover, using CAFE standards to reduce congestion would entail lowering those standards. Policies that target the cost of peak-period driving directly, such as tolls levied during those periods, are better suited for addressing congestion problems.
 

Highway Construction and Maintenance

By altering VMTs, an increase in CAFE standards or the federal gasoline tax or enactment of a cap-and-trade program would also indirectly affect requirements for highway construction and maintenance. Unless the scale of those policy changes was very large, however, the effects on miles traveled would be small. The resulting change in spending needed to continue current levels of highway construction and maintenance would most likely be smaller still.

Raising CAFE standards is the only one of the three policies that would be expected to stimulate demand for highway travel, and that increase in demand would occur gradually over a decade or so. Meanwhile, peak-period demand for highway travel will probably continue to grow independent of any change in the stringency of CAFE standards. That growth is likely to outweigh the effects of all but very large changes in CAFE standards and to be a much more important determinant of highway construction requirements.

The need for highway maintenance is largely determined by road degradation from vehicle travel. Damage to roads is primarily caused by freight and other heavy-duty trucks.⁽¹⁰⁾ A higher gasoline tax would discourage some travel by light-duty vehicles but would not affect heavier, diesel-powered vehicles (unless the tax on diesel fuel was also raised). The same would be true of a cap-and-trade program geared toward gasoline combustion. Similarly, the increased travel caused by higher CAFE standards would be limited to vehicles that weigh less than 8,500 pounds. Thus, the effect of any of those policy changes on highway maintenance needs is likely to be very small.