Policies to improve fuel efficiency and thereby reduce vehicle emissions fall into four major categories: taxation, regulation, voluntary conservation, and technological development.

One key debate in fuel efficiency policy is whether regulation or taxation is a preferable approach. Much of the controversy results because some experts focus primarily on economic efficiency and some focus more on political practicality in evaluating possible options. To take the fuel tax as an example, analysis by Ian Parry shows that a broad tax on oil would accomplish more in relation to its costs than tightening such regulations as the Corporate Average Fuel Efficiency (CAFE) standard, which mandates minimum miles per gallon for automobiles of various types.

But a broad tax on oil has, in the past, encountered severe political objections. A strong tradition insists on exemptions for certain uses – primarily home heating and agriculture. Because a broad tax on oil would be regressive, it also raises issues of tax fairness. For these reasons, even taxes on gasoline have been held to relatively low levels and earmarked specifically for highway maintenance and construction. One question now is whether rising concerns about climate change, and about the national security implications of the country’s increasing consumption of oil, will be sufficient to override the historical resistance to a substantial oil tax.

Voluntary conservation is capable of making a useful contribution to reducing energy and fuel use, particularly when given vigorous national leadership. One proposed option is to require easy-to-understand labels on new cars, similar to the fuel-efficiency labels, alerting buyers to each model’s potential contribution of carbon dioxide relative to all the others.

Over a longer perspective technological innovation can be hugely influential in reducing fuel consumption and cutting emissions of carbon dioxide. But innovation is, by its nature, unpredictable and, in a large economy with much long-lived capital equipment, it is often difficult to disseminate even proven technologies quickly. Public policy can do a lot with subsidies and regulation to generate new ideas and put them to work. But the results are likely to lie decades in the future.

		Should Automobile Fuel Economy Standards Be Increased? Ian W.H. Parry An RFF Weekly Policy Commentary September 2007
		Combating Global Warming One Car at a Time Senior Fellow Kate Probst proposes a CO2 emissions label for new motor vehicles.

		Panel: Energy Efficiency Understanding Transatlantic Differences An RFF Co-Hosted Seminar Speakers address approaches to energy efficiency, the role of government, and the correct response to market failure.

		Should Fuel Economy Standards Be Raised? Ian W.H. Parry Resources 159 Fall 2005 Senior Fellow Ian Parry suggests the debate over fuel economy standards may detract from more pressing policies to address energy security and environmental concerns.
		Understanding Proposed CAFE Reforms for Light-Duty Trucks An RFF Workshop October 20, 2005 Experts discuss the proposed reform package, key questions concerning its implementation, and how it compares to existing policy.
		Understanding Proposed CAFE Reforms for Light Trucks Researchers Billy Pizer and Madeleine Baker find that the proposed corporate average fuel economy (CAFE) reforms represent a clear move toward greater economic efficiency and that the standards are very sensitive to recent increases in oil prices.
		Should Fuel Taxes Be Scrapped in Favor of Per-Mile Charges? Ian W.H. Parry Discussion Paper 05-36 August 2005
		Is Pay-As-You-Drive Insurance a Better Way to Reduce Gasoline than Gasoline Taxes? Ian W.H. Parry Discussion Paper 05-15 April 2005
		Effectiveness and Impact of the Corporate Average Fuel Economy (CAFE) Standards Paul R. Portney Congressional Testimony House Science Committee February 9, 2005
		Chapter 6. Rewarding Automakers for Fuel Economy Improvements  Carolyn Fischer and Paul R. Portney in New Approaches on Energy and the Environment: Policy Advice for the President Richard D. Morgenstern and Paul R. Portney, editors