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A Gas Tax Hike Would Generate $840 Billion, Add 1.2 Million EVs, Cut 1.3 Billion Barrels Fuel Use

By newadmin / Published on Tuesday, 13 Feb 2018 13:33 PM / No Comments / 6 views


proposal to raise the gas tax by $0.25 per gallon and President Trump’s support for up to a $0.50 gas tax hike has restarted contentious debate of the future of U.S. transportation funding. So what impact would this gas tax hike have on the U.S. economy, its fuel use, and its fleet composition?

Energy Innovation evaluated the potential impacts of a gas tax increase on the U.S. economy, total energy demand, and transportation fleet composition using the Energy Policy Simulator (EPS) computer model. The open-source and peer-reviewed EPS uses government data to assess the impacts of dozens of energy-related policies on emissions, costs and savings, and fuel consumption.

Our analysis shows that through 2050, a $0.25 gas tax would generate $840 billion in revenue for the federal government , add 1.2 million additional electric vehicles to U.S. roads, and cut total fuel use by more than 1.3 billion barrels. It is also equivalent to a $29 per ton carbon tax on the transportation sector.

A Gas Tax Hike Would Generate $840 Billion In Revenue Through 2050

The Chamber’s proposal would increase the current $0.18 per gallon gasoline tax five cents per year up to $0.43 per gallon and the $0.24 per gallon diesel tax five cents per year up to $0.49 per gallon. This funding is sorely needed, as the gas tax has lost nearly 40 percent of its value in real terms over the past 25 years as inflation has increased.

The federal trust fund that pays for highways and transit projects through gas tax revenue is projected to run a $138 billion deficit by 2027 unless it slashes funding or finds new sources of revenue. This deficit is made even more acute by Trump’s proposal to authorize $200 billion in new infrastructure improvements without designating where that funding could come from.

A gas tax could provide much of this needed revenue, but doing so will create new direct consumer costs. In past years, consumer costs had prevented any gas tax increase, but several senior Republican Members of Congress seem to support raising the tax, and the American Petroleum Institute may remain neutral rather than opposing it.

Under the Chamber proposal, the tax increase would phase in at $0.05 per year until it reaches $0.25 per gallon. Assuming it starts in 2018, the tax increase would create $39 billion in government revenue per year by 2022, and about $840 billion through 2050. While the Chamber estimates a $0.25 gas tax would raise $394 billion over the next 10 years, our modeling puts this number closer to $303 billion.

Energy Innovation

Increase in U.S. federal government revenue under a gas tax increase

The cost of the gas tax to drivers would grow to about $30 billion per year by 2022, with annual costs steadily decreasing over time (with rising gas prices in a business-as-usual scenario, drivers naturally drive less and purchase an increasing number of electric vehicles, discussed below, so a flat tax has falling revenue in later years). It is worth noting a $0.25 tax increase is well within the historical variation in gas prices.

Energy Innovation

Increase in cost to consumers under a gas tax increase

Increased Fuel Costs Could Add 1.2 Million Additional EVs to U.S. Roads

If a $0.25 gas tax hike were instituted, rising gasoline costs would increase consumer interest in EVs. We project this would have the effect of increasing annual EV sales by about 100,000 per year in 2050, resulting in around 1.2 million additional EVs on the road by 2050.  Of note, our modeling does not account for barriers to EV adoption, for example charging infrastructure build-out needs or EV availability to consumers.

Energy Innovation

Increase in U.S. EV sales under a gas tax increase

This dynamic of increasing electrification and decreasing fuel consumption raises an interesting point: In a future where EVs make up a substantial share of the vehicle fleet, a gas tax will face steadily-falling revenue. Policymakers considering a gas tax may also consider how they can raise infrastructure revenue in a future with much less demand for gasoline and diesel.

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For 25 years the United States federal fuel user fee (aka the “gas tax”) has remained stagnant, even as vehicle miles traveled accelerated and crumbling transportation infrastructure needs accumulated.

But the U.S. Chamber of Commerce’s proposal to raise the gas tax by $0.25 per gallon and President Trump’s support for up to a $0.50 gas tax hike has restarted contentious debate of the future of U.S. transportation funding. So what impact would this gas tax hike have on the U.S. economy, its fuel use, and its fleet composition?

Energy Innovation evaluated the potential impacts of a gas tax increase on the U.S. economy, total energy demand, and transportation fleet composition using the Energy Policy Simulator (EPS) computer model. The open-source and peer-reviewed EPS uses government data to assess the impacts of dozens of energy-related policies on emissions, costs and savings, and fuel consumption.

Our analysis shows that through 2050, a $0.25 gas tax would generate $840 billion in revenue for the federal government , add 1.2 million additional electric vehicles to U.S. roads, and cut total fuel use by more than 1.3 billion barrels. It is also equivalent to a $29 per ton carbon tax on the transportation sector.

A Gas Tax Hike Would Generate $840 Billion In Revenue Through 2050

The Chamber’s proposal would increase the current $0.18 per gallon gasoline tax five cents per year up to $0.43 per gallon and the $0.24 per gallon diesel tax five cents per year up to $0.49 per gallon. This funding is sorely needed, as the gas tax has lost nearly 40 percent of its value in real terms over the past 25 years as inflation has increased.

The federal trust fund that pays for highways and transit projects through gas tax revenue is projected to run a $138 billion deficit by 2027 unless it slashes funding or finds new sources of revenue. This deficit is made even more acute by Trump’s proposal to authorize $200 billion in new infrastructure improvements without designating where that funding could come from.

A gas tax could provide much of this needed revenue, but doing so will create new direct consumer costs. In past years, consumer costs had prevented any gas tax increase, but several senior Republican Members of Congress seem to support raising the tax, and the American Petroleum Institute may remain neutral rather than opposing it.

Under the Chamber proposal, the tax increase would phase in at $0.05 per year until it reaches $0.25 per gallon. Assuming it starts in 2018, the tax increase would create $39 billion in government revenue per year by 2022, and about $840 billion through 2050. While the Chamber estimates a $0.25 gas tax would raise $394 billion over the next 10 years, our modeling puts this number closer to $303 billion.

Energy Innovation

Increase in U.S. federal government revenue under a gas tax increase

The cost of the gas tax to drivers would grow to about $30 billion per year by 2022, with annual costs steadily decreasing over time (with rising gas prices in a business-as-usual scenario, drivers naturally drive less and purchase an increasing number of electric vehicles, discussed below, so a flat tax has falling revenue in later years). It is worth noting a $0.25 tax increase is well within the historical variation in gas prices.

Energy Innovation

Increase in cost to consumers under a gas tax increase

Increased Fuel Costs Could Add 1.2 Million Additional EVs to U.S. Roads

If a $0.25 gas tax hike were instituted, rising gasoline costs would increase consumer interest in EVs. We project this would have the effect of increasing annual EV sales by about 100,000 per year in 2050, resulting in around 1.2 million additional EVs on the road by 2050.  Of note, our modeling does not account for barriers to EV adoption, for example charging infrastructure build-out needs or EV availability to consumers.

Energy Innovation

Increase in U.S. EV sales under a gas tax increase

This dynamic of increasing electrification and decreasing fuel consumption raises an interesting point: In a future where EVs make up a substantial share of the vehicle fleet, a gas tax will face steadily-falling revenue. Policymakers considering a gas tax may also consider how they can raise infrastructure revenue in a future with much less demand for gasoline and diesel.

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