CAFE Increases: Missing the Elephant in the Living Room

Abstract

In a Joint Center paper, Kleit and Lutter identify externalities of about $0.08 per mile for driving light duty vehicles. Rather than recognize the huge externalities from current driving, they focus on a tiny increment that would come from increasing CAFE standards. A first best policy would tax congestion, pollution emissions and gasoline, and increase safety. If that policy is not politically feasible, a second best policy would increase gasoline taxes$1.75 per gallon. Contrary to Kleit and Lutter, we find sound economic reasons for CAFE.