I agree with Mark and Mike that CAFE standards are a terrible tool for the goal of reducing global warming. Global warming is caused by burning carbon-based fuels. Therefore, you want to make burning those fuels more expensive. The simplest way to do so, and the way that also raises money for public programs, is a tax on carbon. Period. CAFE standards are silly, Rube Goldberg device. They encourage car companies to produce cars for which, because they don’t effect the cost of gasoline, there is no market. Raising the cost of gas, through a carbon charge, creates a market. This is Econ 101.
CAFE standards have a single virtue, and that is political. Carbon taxes are highly traceable, in the sense that the pain that citizens feel can be easily traced back to its original cause, which is discrete votes by lawmakers. Politicians don’t like hurting people when their decisions are traceable, and they avoid doing so whenever possible. Hence, their solution is CAFE standards, which, precisely because they have a Rube Goldberg structure, make tracing negative effects to their legislative cause difficult if not impossible. (try figuring out the negative campaign ad related to them and you’ll get the idea).
If you want to impose taxes in ways politicians find palatable, you have two choices. First, you can make the traceability chains between the tax and the ultimate pain more complicated and thus harder to pin on individual politicians’ decisions. VAT, which ends up hidden in the costs of goods and services, is one such tax (which is why in Europe it’s almost 20%). The other strategy is “linkage”: connecting the tax directly to a highly visible and valuable benefit. We impose large taxes on Social Security, but so far as I know no one has been voted out of office for increasing them (at least not directly) because they’re connected to SS benefits, and increases can be explained as necessary to protect the program.
I am against, with every fiber of my being, Mark’s well-meaning but wrong suggestion of using a carbon tax to pay for Social Security, while scrapping the payroll tax. My posting below not withstanding, Social Security basically works, as is, both politically and in policy terms. It’s the largest and most effective program of social insurance we’ve got. I’m enough of a temperamental conservative not to want to screw with things that work. There are changes we can make basically within the parameters of the program to make it more progressive and ensure its fiscal balance (like increasing the cap on taxable earnings). Leave it alone.
On the other hand, as I suggest below, the obvious next step in expanding social insurance is universal health care. There’s a case where we don’t already have an obvious funding source to pay for social insurance, and we need one. Current budget rules dictate that a funding source will have to be identified (even if we think that, over time, a universal, national program will slow the growth in health care spending). Attaching a carbon tax to universal health care both solves the revenue problem with expanding health care, and the political problem associated with imposing a new tax (by linking it to a highly visible and valued benefit). There is still a political risk here, but it’s more reasonable than trying to sell the carbon tax on its own, or raising some other tax not linked to a high-profile public problem (global warming).
The only problem I can see with this is that the tax and the benefit are pretty remotely linked (there’s really no connection between the two problems, so it looks a little jerry-rigged). Also, if the carbon tax works, the revenue from it will go down over time. That’s why you don’t want to make it the sole revenue source for universal health care. But Medicare isn’t purely funded out of the tax that’s on your pay stub, but people still have a sense that the taxes and benefits are somehow connected.
NOTE: All the traceability chains stuff above rips off Douglas Arnold’s monumentally brilliant Logic of Congressional Action, which should be mandatory reading for everyone, but especially people in public policy programs. Everyone should follow the link and buy it.