Researchers at MIT have released a new report showing that increasing fuel efficiency standards in order to reduce greenhouse gas emissions costs our economy six to fourteen times more than would increasing the gasoline tax.  Increasing fuel efficiency standards for new cars, they point out, does nothing to reduce emissions from the existing fleet of older vehicles on the road.  A higher fuel tax, by comparison, would encourage all drivers to use less fuel by driving less and aiming for the best mileage possible.  A higher gas tax is a tough sell politically because the price hike is highly visible to consumers.  In contrast, consumers probably won’t notice the higher cost they pay for a more fuel efficient car – especially because the portion of vehicle cost attributable to efficiency technologies will be impossible to calculate.

But while an increase in the gas tax is indeed a more efficient solution than increasing fuel efficiency standards for new cars, a Pure Cap-and-Dividend program (read about it here) would be even better – and more palatable to voters.  For example, because all revenues would be rebated to citizens pro-rata under a Pure Cap-and-Dividend program, consumers would receive some compensation for the higher costs they face at the pump.  But the rebate would be pro-rata (and definitely not based on the amount paid by the individual consumer in higher costs).  That means each individual would have an incentive to minimize his or her greenhouse gas emissions.  And consumers who cause fewer greenhouse gas emissions than average would stand to make a profit: they would pay less than average in emissions costs but would still receive the same rebate amount as everyone else.  Best of all, consumers won’t have to scratch their heads and wonder how to lower their greenhouse gas emissions, they can just think about the best approach to making their hard earned dollars go further – products and services that cause fewer emissions will have a price advantage.

In other words, the team at MIT makes a great argument in favor of the gas tax but adopting a Pure Cap-and-Dividend program is an even better solution.  It is less expensive overall and fairer.

Click here to read an op-ed in Friday’s New York Times by Valerie J. Karplus, one of the authors of the new report.

Click here for a link to the report’s abstract (or to buy the article) in the March 2013 volume of the journal Energy Economics.