Tougher CAFE standards will take $57B bite out of highway fund — CBO

Source: Jason Plautz, E&E reporter • Posted: Friday, May 4, 2012

Proposed rules that would double fuel economy standards by 2025 would also take $57 billion out of the already depleted highway trust fund, the Congressional Budget Office says in a new report.

The report from the nonpartisan CBO found that the reduction in fuel consumption as a result of proposed corporate average fuel economy (CAFE) standards would mean gasoline tax receipts would eventually fall by 21 percent by 2040.

Over the 11 years, there would be a 13 percent drop and could require a gas tax increase as an offset, the report says.

That is a significant hit for the highway and transit account, which has already seen its funds dwindle because the gas tax has not been increased from 18.3 cents per gallon since 1993. Already the fund is projected to pay out 75 percent of its outlays by 2022, according to CBO, but that would drop to 65 percent under fuel economy standards.

In a previous report, CBO had warned that the highway fund could be insolvent as early as fiscal 2013, which begins in October, thanks to the dwindling gas tax revenue (E&E Daily, Feb. 1).

“Policies that are designed to reduce gasoline consumption, including those that would impose stricter standards for the fuel economy of vehicles, could decrease revenues for the trust fund and thus could add to the shortfall,” CBO said.

Under fuel economy standards proposed by U.S. EPA and the National Highway Traffic Safety Administration, cars and light trucks will be subject to a fleetwide standard of 54.5 miles per gallon by 2025. CBO said that the full effects of the standards on the trust fund would not be clear until 2040 because of the time required for fleet turnover and because the standards are phased in starting in 2017.

Further complicating matters, CBO said, is a policy mandating the use of 36 billion gallons of renewable fuels by 2022.

The renewable fuels standard (RFS) set up in 2005, CBO said, would further shrink consumption of gasoline. Combined with the impact of CAFE standards, the RFS would mean a 21 percent drop in gas use by 2040.

To offset the impact on the trust fund, CBO says lawmakers could enact a 5-cent-per-gallon increase in the gasoline tax. However, a fuel tax increase has been politically toxic during the economic slowdown, and the report acknowledges the “proportionately larger burden” fuel taxes play on middle- and lower-class drivers. Thus, CBO said, a combination of a gas tax hike with a new per-mile or vehicle-miles-traveled fee could be a replacement.

Short of reducing spending on roads and transit, CBO also notes that lawmakers could transfer money from the general fund to the highway trust fund, a move taken by Congress every year from 2008 to 2010 to make up for a shortfall.