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For Better or Worse?

Industry leaders say the final CAFE standards will mean a $65 billion-plus loss for highway and transit improvements.

By Tina Grady Barbaccia, News and Digital Editor

The Obama Administration’s July 29 proposal to increase fuel efficiency standards for cars and light trucks to an average 54.5 miles per gallon (mpg) between 2017 and 2025 would result in the loss of more than $65 billion in federal funding for state and local highway, bridge, and transit improvements, according to an analysis by the American Road & Transportation Builders Association (ARTBA). The original Corporate Average Fuel Economy (CAFE) standard, set in 1975, demanded a 40-percent increase in fuel efficiency.

The impact on the nation’s transportation improvement program, ARTBA President Pete Ruane said, would be like eliminating all federal highway funding for nearly two years.

“Like everyone else, we are supportive of efforts to reduce carbon emissions and improve fuel economy,” Ruane said in a written statement. “However, from a public policy perspective, this is a classic case of the left hand not knowing what the right hand is doing. It’s irresponsible to advance such proposals without acknowledging and attempting to mitigate the adverse effect they would have on other areas of federal responsibility like making infrastructure improvements that improve safety, reduce traffic congestion, create jobs, and help grow the economy.”

Per gallon federal gasoline and diesel taxes collected at the pump are deposited into the federal Highway Trust Fund (HTF). By law, these excises are the primary revenue source for financing road, bridge, and transit projects. The less motor fuel used by drivers, the less revenue generated for improvements financed through the HTF.

The analysis, conducted by Dr. William Buechner, a Harvard-trained economist and ARTBA vice president of economics & research, assumes the increase in fuel efficiency standards between now and 2016 will occur as required (in 2010, the Obama Administration put in place an increase from an average 28.3 to 34.1 mpg by 2016). It also assumes the mpg requirement will be phased in at 5 percent per year from 2017 through 2025 as proposed.

The baseline for calculating revenue losses is the U.S. Treasury’s February 2009 projections of HTF revenues. As new cars and light trucks are purchased in the future and old ones retired, average fuel economy will improve, reducing the 2009 forecast of gasoline sales and HTF revenues.