How Would Proposed Fuel Economy Standards 

Affect the Highway Trust Fund?

The federal government’s surface transportation programs are financed mostly through the Highway Trust 

Fund. Revenues from a variety of transportation-related 

excise taxes are credited to the fund; the largest share 

comes from federal taxes on gasoline, including gasoline 

that is blended with ethanol. Those revenues are allocated 

to two separate accounts within the fund, one for spending on highways and one for spending on mass transit. 

Although the fund’s balances were stable for many years, 

for much of the past decade its outlays have exceeded 

receipts. In recent years, the shortfall has been covered by 

transfers from the U.S. Treasury’s general fund.1

 Policies 

that are designed to reduce gasoline consumption, 

including those that would impose stricter standards for 

the fuel economy of vehicles, could decrease revenues 

for the trust fund and thus could add to the shortfall. 

In 2011, the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection 

Agency (EPA) jointly proposed a rule that would tighten 

corporate average fuel economy (CAFE) standards for 

light-duty vehicles (including cars, sport utility vehicles, 

pickup trucks, minivans, and crossover utility vehicles) 

manufactured over the period from 2017 through 2025. 

By the end of that time, the proposed standards are 

expected to raise the average fuel economy of the newvehicle fleet from 34.1 miles per gallon (mpg)—the average anticipated for 2016 and beyond under current 

standards—to 49.6 mpg. The proposed rule also would 

require gradual reductions in greenhouse gas emissions 

from light-duty vehicles, which would be accomplished 

primarily through reduced fuel consumption.2

The Congressional Budget Office (CBO) estimates that 

the proposed CAFE standards would gradually lower gasoline tax revenues, eventually causing them to fall by 

21 percent. That full effect would not be realized until 

around 2040 because the standards would gradually 

increase in stringency (only reaching their maximum level 

in 2025) and because the vehicle fleet changes slowly as 

older vehicles are replaced with new ones. 

To illustrate the eventual effect of the standards on the 

trust fund’s cash flows, CBO has examined how a 21 percent reduction in gasoline tax collections would alter the 

agency’s current projections for the trust fund, spanning 

the period from 2012 through 2022.3

 CBO estimates 

that such a decrease would result in a $57 billion drop in 

revenues credited to the Highway Trust Fund over those 

11 years—a 13 percent reduction in the fund’s total 

receipts from all sources. The full 21 percent reduction in 

gasoline tax revenues, however, would not occur for 

about 30 years. 

Policymakers could consider several options to avoid adding to a shortfall in the Highway Trust Fund, including 

the following: 

Note: Unless stated otherwise, all years are federal fiscal years, 

which begin on October 1 and continue until September 30. All 

amounts expressed in dollars are in nominal dollars. Numbers in 

text and tables may not add to totals because of rounding.

1. The general fund of the Treasury records receipts and spending 

that are not allocated by law to any other fund account.

2. See Department of Transportation, “Proposed Rule: 2017 and 

Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions 

and Corporate Average Fuel Economy Standards,” Federal Register, 

vol. 76, no. 231 (December 1, 2011), pp. 74854–75420, 

http://go.usa.gov/EdH. The standards established for 2022 

through 2025 are subject to review by NHTSA and EPA to ensure 

that they are technologically and economically feasible.

3. For additional details on trust fund projections, see Congressional 

Budget Office, The Budget and Economic Outlook: Fiscal Years 

2012 to 2022 (January 2012), pp. 121–126.

MAY 2012
2 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? MAY 2012

CBO

B Reducing spending on highways and mass transit, 

B Transferring additional money from the Treasury’s 

general fund to the Highway Trust Fund, and

B Increasing the gasoline tax or raise revenue from other 

sources to provide receipts to the trust fund.

The Highway Trust Fund

The Highway Revenue Act of 1956 established the Highway Trust Fund, which records revenues collected from 

excise taxes on the sale of motor fuel, trucks and trailers, 

and truck tires; taxes on the ownership of trucks that 

weigh 55,000 pounds or more; and interest credited to 

the fund based on its balances. The fund also records cash 

outflows to pay for most highway and mass transit programs, although some transit projects receive appropriations from the Treasury’s general fund. 

The gasoline tax now generates about 60 percent of 

the receipts credited to the fund; the tax on diesel fuel 

(consumed mostly by heavy trucks, which would not 

be covered by the proposed standards discussed in this 

report) generates another 30 percent.4

 The Highway 

Trust Fund receives 18.3 cents of the 18.4 cents-pergallon tax on gasoline. (The other tenth of a cent goes to 

a trust fund established in 1986 to remediate damage 

caused by leaks from underground petroleum storage 

tanks.) About 85 percent of the fund’s revenues from the 

gasoline tax goes to its highway account; the remaining 

15 percent goes to the mass transit account. Spending 

from each account is controlled largely by annual appropriation acts that limit the amount that can be obligated 

each year for highway and transit programs.

There is no requirement that receipts credited to the fund 

in a particular year either match or exceed outlays in that 

year but, by law, the trust fund must maintain a positive 

balance. For about 30 years, annual receipts were roughly 

equal to annual outlays. Then, in the mid-1990s, receipts 

began to rise, primarily because of an increase in the gasoline tax rate (see Figure 1).5

 By the end of 2000, the 

fund’s balance had reached $31 billion. But starting in 

the late 1990s, various laws were enacted that led to a 

subsequent decline in the balance.6

 From 2001 through 

2011, the fund’s outlays exceeded its receipts by $44 billion. (In 2011, receipts amounted to $37 billion, and 

outlays totaled $46 billion.) By 2008, the balance had 

become insufficient to cover the shortfall in receipts relative to outlays, and over the past few years, lawmakers 

transferred almost $35 billion from the Treasury to maintain a positive balance in the trust fund. 

CBO’s most recent baseline projections for the Highway 

Trust Fund span the period from 2012 through 2022.7

The agency’s projections indicate that if the tax and 

spending policies in effect in 2012 continued through 

2022, the receipts credited to the fund would total about 

$442 billion, $147 billion less than the fund’s projected 

outlays of about $589 billion (see Table 1).8

 (The Congress is considering legislation that could affect the fund’s 

outlays and receipts over that period.) According to 

CBO’s baseline projections, outlays for the highway 

account from 2012 through 2022 would exceed receipts 

by $93 billion, and outlays for mass transit would exceed 

receipts during that period by $54 billion. In keeping 

with the requirement to maintain a positive balance, the 

Department of Transportation could spend those 

amounts only if the trust fund received additional revenues from the designated transportation-related excise 

taxes or was credited with additional funds from other 

sources. 

4. EPA has issued fuel economy standards for heavy trucks that will 

take effect in 2014 and increase gradually through 2018. See 

Environmental Protection Agency, “EPA and NHTSA Adopt 

First-Ever Program to Reduce Greenhouse Gas Emissions and 

Improve Fuel Efficiency of Medium- and Heavy-Duty Vehicles,” 

Regulatory Announcement EPA-420-F-11-031 (August 2011), 

http://go.usa.gov/EdJ. 

5. That tax was increased by 4.3 cents per gallon in 1993, although 

until 1997 the additional receipts were directed to the general 

fund of the Treasury rather than to the Highway Trust Fund.

6. The first of those laws was the Transportation Equity Act for the 

21st Century, enacted in June 1998. The most recent was the 

Safe, Accountable, Flexible, Efficient Transportation Equity Act: 

A Legacy for Users, enacted in August 2005. 

7. Congressional Budget Office, Updated Budget Projections: Fiscal 

Years 2012 to 2022 (March 2012).

8. The baseline revenue amounts are derived from CBO’s March 

2012 baseline projections for real (inflation-adjusted) economic 

growth and from anticipated increases in vehicle fuel economy. As 

specified in the Balanced Budget and Emergency Deficit Control 

Act of 1985, CBO constructs its baseline under the assumption 

that the excise taxes on automobile fuel, some of which are 

scheduled to expire under current law, instead will be extended at 

their current rates. CBO projects highway spending over the next 

decade by assuming that obligation limitations in future years 

would equal those enacted in the 2012 appropriation act for the 

Department of Transportation, adjusted for inflation.
MAY 2012 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? 3

CBO

Figure 1.

The Highway Trust Fund’s Outlays, Receipts, and Transfers

(Billions of dollars)

Source: Congressional Budget Office based on data from the Department of Transportation.

Note: Beginning in 2006, total annual outlays reflect a change in accounting treatment for certain outlays from the mass transit account. 

That change slowed the rate of spending from that account and thus reduced the amount recorded for outlays from the Highway Trust 

Fund relative to amounts in earlier years; certain outlays that had been treated as outlays in a single year are now spread across 

several years.

a. Includes excise tax revenues, interest earned on balances, and receipts from other sources.

Proposed Changes in CAFE Standards

The standards proposed by NHTSA and EPA would 

increase fuel economy for new light-duty vehicles—

passenger cars and light trucks, which include sport 

utility vehicles, crossover utility vehicles, minivans, 

and pickup trucks—culminating in an average fuel economy of 49.6 mpg for vehicles produced in 2025 (see 

Figure 2).9

 The proposed standards would tighten current 

CAFE standards, which were finalized in April 2010. 

According to current standards, the combined average 

fuel economy for new cars and light trucks will rise from 

29.7 mpg in 2012 to 34.1 mpg by 2016 and remain at 

that level thereafter. The existing standards replaced a 

system of separate, less stringent standards that applied to 

cars and light trucks manufactured before 2012. 

Manufacturers that fail to comply with the CAFE 

standards are subject to fines.

Beginning in 2011, fuel economy targets apply to vehicles on the basis of size and type: Cars and light trucks of 

similar size are subject to different standards; within each 

vehicle type, the smaller the vehicle, the stricter its fuel 

economy target. As a result, each manufacturer’s mandated average fuel economy depends on the mix of 

vehicles it produces. Thus, NHTSA can only estimate the 

average fuel economy of the new-vehicle fleet in any 

given year; the actual average fuel economy could differ 

from that estimate if automakers produced a different 

mix of vehicles than anticipated. (With 18 months’ 

notice, NHTSA can recalibrate the standards if it decides 

that the maximum feasible targets are higher or lower 

than those currently set in the proposed rule.) This 

analysis by CBO is based on the assumption that the 

average fuel economy of the new-vehicle fleet will equal 

NHTSA’s estimate of 49.6 mpg. 

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

0

10

20

30

40

50

60

Total Annual Receiptsa

Transfers from the General Fund

Total Annual Outlays

9. See Department of Transportation, Federal Register, vol. 76, 

no. 231 (December 1, 2011), p. 74859, http://go.usa.gov/EdH. 

For a previous CBO analysis comparing CAFE standards and a 

fuel tax, see Congressional Budget Office, The Economic Costs 

of Fuel Economy Standards Versus a Gasoline Tax (December 2003). 
4 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? MAY 2012

CBO

Table 1.

Projected Cash Flows of the Highway Trust Fund for Fiscal Years 2012 to 2022 

If Gasoline Tax Revenues Fell by 21 Percent Below Current Projections

(Billions of dollars)

Source: Congressional Budget Office.

a. Receipts include excise tax revenues, interest earned on balances, and miscellaneous revenues from other sources. The baseline receipt 

amounts are derived from CBO’s March 2012 baseline projections for real (inflation-adjusted) economic growth and from anticipated 

increases in vehicle fuel economy. As specified in the Balanced Budget and Emergency Deficit Control Act of 1985, CBO constructs its 

baseline under the assumption that the excise taxes on automobile fuel, some of which are scheduled to expire under current law, will be 

extended at their current rates. CBO projected highway spending over the next decade by assuming that the obligation limitations in 

future years would equal those enacted in the 2012 appropriation act for the Department of Transportation, adjusted for inflation.

b. For illustration, CBO examined the effects of a 21 percent reduction in revenues from taxes on gasoline and other fuels used by light-duty 

vehicles during fiscal years 2012 through 2022. That percentage reduction reflects the decline in revenues that CBO estimates would 

occur if most light-duty vehicles on the road were built subject to the proposed corporate average fuel economy standards for 2025 

(resulting in an average fuel economy of 49.6 miles per gallon) as opposed to established standards for 2016 (resulting in an average fuel 

economy of 34.1 miles per gallon). The full effect of such a reduction would not be evident for about 30 years because of the gradual 

increase in the standards’ stringency, beginning only in 2017, and because the vehicle fleet changes slowly as older vehicles are replaced 

with new ones.

c. The $57 billion decrease in receipts credited to the Highway Trust Fund reflects the 21 percent decrease in gasoline tax revenues that CBO 

used in its analysis. The decline in receipts credited to the Highway Trust Fund would be less than 21 percent because gasoline tax 

receipts constitute only about 60 percent of the fund’s total receipts. 

Under the proposed CAFE standards, manufacturers that 

exceed their corporate average fuel economy requirement 

in any particular year would be given credits for use in 

other years. Those credits may be carried back for as 

many as three years to achieve compliance for an earlier 

year in which the manufacturer fell short of its requirement or carried forward for as many as five years to count 

toward compliance in a future year. That would give 

manufacturers the flexibility to fall short of their required 

corporate average fuel economy in any particular year as 

long as they made it up in another year. Manufacturers 

also would be permitted to trade credits: An automaker 

that fell short of its CAFE requirement could purchase 

credits from another automaker that exceeded its requirement. Finally, manufacturers could receive credits for 

making alterations to their vehicles (by installing highefficiency headlights or rooftop solar panels, for example) 

that would reduce fuel consumption but that would not 

register as increases in fuel economy as measured by the 

government’s CAFE test protocol. 

Receipts 442 385 -57 c

Outlays 589 589 0 ____ ____ ___

Difference -147 -204 -57

Receipts 386 339 -48

480 480 0 ___ ____ ___

Difference -93 -141 -48

56 47 -9

109 109 0 ___ ___ __

Difference -54 -62 -9

Mass Transit Account

If Gasoline Tax Revenues

Fell by 21 Percentb

Receipts

Outlays

Outlays

Baselinea Change

Total Trust Fund

Highway Account
MAY 2012 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? 5

CBO

Figure 2.

Estimated Average Fuel Economy of 

Light-Duty Vehicles Under CAFE 

Standards, 2010 to 2025

(Miles per gallon)

Sources: Congressional Budget Office based on data from the 

Department of Transportation.

Notes: CAFE standards are fuel economy targets that apply to 

vehicles on the basis of size and type; smaller vehicles have 

higher fuel economy targets. The average fuel economy of 

the fleet of new light-duty vehicles will depend on the mix of 

vehicles that is actually produced.

CAFE = corporate average fuel economy.

a. Combined standards were not calculated until 2012.

Under EPA’s authority to administer the provisions of the 

Clean Air Act, the proposed rule also would require that 

greenhouse gas emissions from light-duty vehicles decline 

gradually from an estimated average of 241 grams per 

mile in 2016 (based on the fuel economy standards for 

that year) to 163 grams per mile by 2025. If manufacturers achieved that reduction solely by boosting miles per 

gallon, the fuel economy for an average vehicle would 

need to be about 54.5 mpg. However, the standard for 

greenhouse gas emissions would allow manufacturers to 

comply in part through measures that do not affect fuel 

economy, such as reducing leakage from vehicles’ airconditioning systems or using refrigerants that are less 

potent greenhouse gases than those currently in use. EPA 

anticipates that manufacturers will take full advantage of 

those relatively low-cost options, and that, as a result, 

meeting the greenhouse gas standard would lead to an 

average fuel economy for the fleet of about 49.6 mpg in 

2025, matching NHTSA’s estimate of the average fuel 

economy under the proposed CAFE standards.

CAFE standards have been in place since the late 1970s, 

when proponents viewed them as a way to decrease the 

nation’s dependence on oil; more recently, interest has 

expanded to include the standards’ ability to reduce emissions of greenhouse gases. The proposed standards are 

expected to advance both goals. EPA estimates that the 

amount of gasoline consumed by cars and light trucks 

would fall by almost 2 percent in 2020 and by 25 percent 

in 2040 relative to the amount that would be consumed 

if the 34.1 mpg standard established for 2016 remained 

in place until 2040.10 EPA also estimates that, under the 

proposed rule, greenhouse gas emissions from cars and 

light trucks would fall by roughly 2 percent in 2020 and 

by 31 percent in 2040, reducing U.S. emissions of greenhouse gases from all sources by 0.4 percent in 2020 and 

by 5.8 percent in 2040.11

Effects of the Proposed CAFE 

Standards on Fuel Consumption 

and the Highway Trust Fund 

The proposed CAFE standards eventually would cause 

a significant reduction in fuel consumption. That reduction, in turn, would decrease receipts credited to the 

Highway Trust Fund. 

Fuel Consumption

By 2040, according to EPA’s estimates, the proposed 

standards would reduce annual gasoline consumption 

by 25 percent—from 160 billion gallons without the 

proposed standards to 119 billion gallons with the proposed standards. By that time, nearly all light-duty 

vehicles on the road either will have been manufactured 

after 2025, and thus be subject to the 49.6 mpg standard, 

2010 2013 2016 2019 2022 2025

0

10

20

30

40

50

60

Final Rules Proposed Rules

Passenger

Cars

Combined

Cars and

Trucksa

Light

Trucks

10. Separate studies conducted by EPA and NHTSA of the effects of 

the proposed standards predicted similar reductions in gasoline 

consumption. CBO relied on EPA’s projections because NHTSA 

did not report fuel savings by calendar year beyond 2025. See 

Department of Transportation, Federal Register, vol. 76, no. 231 

(December 1, 2011), http://go.usa.gov/EdH. For EPA estimates 

see Table III-68, p. 75123; for NHTSA estimates see Table IV-39, 

p. 75258.

11. Ibid., pp. 75090–75092, http://go.usa.gov/EdH.
6 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? MAY 2012

CBO

or will be driven relatively little.12 After reviewing the 

assumptions and methodology that underlie EPA’s projections for reduced use of gasoline, CBO used those 

projections in its own calculations. 

EPA reports only the effect the CAFE standards would 

have on gasoline consumption.13 Because CBO’s objective is to estimate how receipts from the gasoline tax 

would change as a result of new standards, its calculations 

also include the consumption of other fuels subject to the 

gasoline tax—notably, renewable fuels, such as ethanol, 

that are blended into gasoline. The consumption of those 

fuels is largely governed by the terms of the Renewable 

Fuels Standard (RFS), which was created by the Energy 

Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007. The RFS requires that 

the use of renewable fuels in light-duty vehicles and heavy 

trucks increase from 15.2 billion gallons in 2012 to 

36 billion gallons annually by 2022—although meeting 

the RFS will entail surmounting several obstacles (see 

Box 1).14

By accounting for that 36 billion gallons of renewable 

fuel, CBO estimates that total fuel consumption by lightduty vehicles in 2040 would shrink by 21 percent—from 

196 billion gallons (160 billion gallons of gasoline plus 

36 billion gallons of renewable fuel) under the current 

CAFE standards to 155 billion gallons (119 billion gallons of gasoline plus 36 billion gallons of renewable fuel) 

under the proposed standards.

Highway Trust Fund Revenues

The 21 percent decrease in fuel consumption by lightduty vehicles would result in a proportionate drop in 

gasoline tax receipts. Thus, once nearly all light-duty 

vehicles on the road were manufactured in 2025 or later, 

the proposed rule would reduce the gasoline tax revenues 

credited to the Highway Trust Fund by 21 percent, CBO 

estimates. (That drop, in turn, would reduce total trust 

fund receipts—from the gasoline tax and other sources—

by 13 percent.)

To illustrate the eventual effect of the standards on the 

trust fund’s balances, CBO examined how the fund 

would be affected if gasoline tax revenues fell in the near 

term (for any reason) by 21 percent. Over the 11-year 

period covered by CBO’s latest baseline projection of the 

fund’s cash flows, such a reduction would translate into a 

$57 billion decrease in gasoline tax collections.15 As a 

result, total receipts credited to the fund over that period 

would be $385 billion instead of $442 billion (see Table 

1 on page 4). In that case, the fund’s outlays would 

exceed its receipts by about $204 billion, rather than by 

the $147 billion that CBO estimated for its baseline projections (which did not include a 21 percent decrease in 

gasoline tax revenue). Consequently, trust fund receipts 

would equal only 65 percent of projected outlays, rather 

than 75 percent under the baseline projections. The 

$57 billion decrease in gasoline tax revenue would reduce 

receipts credited to the highway account by $48 billion 

and to the mass transit account by $9 billion (see 

Figure 3). 

The Basis of the Estimates

In calculating the eventual effect (for 2040 and beyond) 

of the proposed increase in CAFE standards on gasoline 

tax revenues, CBO relied on EPA’s projections of gasoline 

12. The new CAFE standards would not take effect until 2017, so 

they would reduce gasoline tax revenues between 2012 and 2022 

by less than 1 percent, CBO estimates. 

13. EPA and NHTSA project that less than 1 percent of the vehicle 

fleet will consume diesel fuel and that the number of diesel 

vehicles purchased will be unchanged by the proposed standards. 

The agencies have reported only on how consumption of 

nonrenewable fuel would be affected because their objective was to 

examine how the standard would change petroleum consumption 

and greenhouse gas emissions rather than how it would affect 

receipts from gasoline taxes.

14. NHTSA and EPA assume, as does CBO, that 36 billion gallons of 

renewable fuel will be consumed in 2040. If so, the RFS will 

increase gasoline tax revenues by about $2.2 billion per year, with 

or without the proposed increase in CAFE standards. That 

increase will occur because renewable fuels have a lower energy 

content than gasoline; hence, 36 billion gallons of renewable fuel 

will displace only 24 billion gallons of gasoline and, consequently, 

12 billion additional gallons of fuel will be subject to the 18.4 cent 

tax on gasoline–ethanol blends. A small fraction of the RFS is 

likely to be met through the use of biodiesel fuel (the amount will 

be determined by a future rulemaking). To the extent that occurs, 

the additional revenues resulting from the RFS would be 

diminished because biodiesel and gasoline have about the same 

energy content—biodiesel delivers more miles per gallon than 

other renewable fuels do, thus requiring less frequent refueling. 

15. The decrease in gasoline tax collections also would reduce the 

interest credited to the fund. In the 2012–2022 period covered 

by CBO’s projections, however, interest accounts for less than 

$300 million of the $442 billion in total receipts.
MAY 2012 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? 7

CBO

Box 1.

Challenges in Meeting the Renewable Fuels Standard

The Renewable Fuels Standard (RFS), enacted under 

the Energy Policy Act of 2005 and expanded under 

the Energy Independence and Security Act of 2007, 

was designed to promote the use of renewable fuels 

and to achieve reductions in greenhouse gas emissions.1

 This Congressional Budget Office (CBO) 

analysis was developed under the assumption that the 

RFS would be met in 2040. (CBO also assumed that 

by 2040 most vehicles on the road would be built 

subject to the proposed corporate average fuel economy, or CAFE, standards for 2025, resulting in an 

average fuel economy of 49.6 miles per gallon.) To 

meet the RFS, however, fuel refiners would need 

to boost production of fuel from renewable resources 

and contend with limitations in the ability of most 

vehicles to operate on fuel blends with greater 

concentrations of ethanol. The proposed CAFE 

standards would exacerbate the latter challenge: By 

reducing fuel consumption, the standards would 

increase the concentration of renewable fuels in the 

supply of gasoline because the RFS requires that sales 

of renewable fuels meet a certain minimum number 

of gallons.2

The RFS specifies that by 2022, at least 36 billion 

gallons of renewable fuels per year must be blended 

into the motor fuel supply.3

 The standard further 

requires that no less than 16 billion gallons of that 

total be cellulosic biofuel (made from wood chips, 

prairie grasses, fast-growing trees, or agricultural harvest waste). That requirement could be difficult to 

attain because cellulosic biofuel has not yet been 

produced commercially in the United States. Systems 

still must be developed to transport and store the 

bulky feedstock, and demonstration plants for processing the fuel must be scaled up for commercial 

production. Because of those impediments, the Environmental Protection Agency (EPA) has several times 

reduced its near-term annual targets for cellulosic 

biofuel, which are considerably less stringent than 

the 2022 requirement: For 2012, EPA scaled back 

the originally mandated 500 million gallons to 

8.65 million gallons.

Blending in the required amounts of renewable fuel 

poses a second challenge: Most gasoline-powered 

engines cannot run on fuel that is more than 10 percent or 15 percent ethanol without risking corrosive 

engine damage. That constraint, called the blend 

wall, limits the amount of ethanol the U.S. market 

can accommodate—currently between 10 percent 

and 15 percent of the amount of motor fuel sold in 

the United States. If the proposed standards are not 

adopted, EPA estimates that 160 billion gallons of 

gasoline will be consumed in 2040; if they are 

adopted, the estimate is around 119 billion gallons 

of gasoline. Meeting the RFS requirement of 36 billion gallons of renewable fuel in 2040 would require 

average ethanol concentrations in gasoline blends of 

21 percent without the proposed CAFE standards or 

30 percent with them.

The constraint posed by the blend wall can be eased 

by means of relatively inexpensive modifications to 

engines. Because most vehicles manufactured after 

2001 can run on E15 fuel blends (containing up to 

15 percent ethanol), as older vehicles are retired an 

increasing share of the fleet will be able to run on that 

fuel. Higher ethanol concentrations also are possible 

with engine modifications. Cars in Brazil, for example, run on fuel that is at least 20 percent ethanol. 

Flexible-fuel vehicles in the United States can operate 

on E85 fuel (containing up to 85 percent ethanol), 

although fewer than 2 percent of all filling stations in 

the United States currently offer it. 

1. For more information, see Environmental Protection Agency, 

“Renewable Fuel Standard (RFS),” http://go.usa.gov/EAJ.

2. For discussion of other issues associated with the increased 

use of ethanol, see Congressional Budget Office, Using 

Biofuel Tax Credits to Achieve Energy and Environmental Policy 

Goals (July 2010); and The Impact of Ethanol Use on Food 

Prices and Greenhouse-Gas Emissions (April 2009). 

3. See Randy Schnepf and Brent D. Yacobucci, Renewable Fuel 

Standard: Overview and Issues, CRS Report for Congress 

R40155 (Congressional Research Service, January 23, 2012). 
8 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? MAY 2012

CBO

Figure 3.

Projected Outlays and Receipts of the Highway Trust Fund, by Account, 2012 to 2022

(Billions of dollars)

Source: Congressional Budget Office.

a. Receipts include excise tax revenues, interest earned on balances, and miscellaneous revenues from other sources. The baseline receipt 

amounts are derived from CBO’s March 2012 baseline projections for real (inflation-adjusted) economic growth and from anticipated 

increases in vehicle fuel economy. As specified in the Balanced Budget and Emergency Deficit Control Act of 1985, CBO constructs its 

baseline under the assumption that the excise taxes on automobile fuel, some of which are scheduled to expire under current law, will be 

extended at their current rates. CBO projected highway spending over the next decade by assuming that the obligation limitations in 

future years would equal those enacted in the 2012 appropriation act for the Department of Transportation, adjusted for inflation.

b. For illustration, CBO examined the effects of a 21 percent reduction in revenues from taxes on gasoline and other fuels used by light-duty 

vehicles during fiscal years 2012 through 2022. That percentage reduction reflects the decline in revenues that CBO estimates would 

occur if most light-duty vehicles on the road were built subject to the proposed corporate average fuel economy standards for 2025 

(resulting in an average fuel economy of 49.6 miles per gallon) as opposed to established standards for 2016 (resulting in an average fuel 

economy of 34.1 miles per gallon). The full effect of such a reduction would not be evident for about 30 years because of the gradual 

increase in the standards’ stringency, beginning only in 2017, and because the vehicle fleet changes slowly as older vehicles are replaced 

with new ones.

consumption both with and without the new standards 

(while making adjustments for renewable fuels). In its 

projections, EPA assumed that without the proposed 

standards, average vehicle fuel efficiency would rise to 

meet the current CAFE standard for light-duty vehicles 

of 34.1 mpg in 2016 and remain there indefinitely. EPA 

also assumed that automakers would fully comply with 

the proposed standards, although historically some manufacturers (chiefly those that export luxury or sports cars 

to the United States) have chosen to pay fines instead. 

EPA’s analysis was governed by several additional 

assumptions:

B The pace at which tighter CAFE standards would be 

reflected in the vehicle fleet is based on the fraction of 

each model year’s vehicles still on the road in each succeeding year as derived from vehicle registration data 

for 2008.

B Future gasoline prices and total miles traveled by lightduty vehicles will follow the projections published by 

the Energy Information Administration (EIA) in its 

Annual Energy Outlook 2011 (for example, EIA estimated that gasoline will cost $3.38 per gallon in 2020, 

measured in 2009 dollars).16 Although the forecast 

extends only through 2035, EPA assumed that the 

rates of increase for gasoline prices and miles traveled 

would remain constant through 2050.

Total Trust Fund Highway Account Mass Transit Account

0

100

200

300

400

500

600

700

Outlays

Baseline Receiptsa

Receipts If Gasoline Tax Revenues

Fell by 21 Percentb

16. Energy Information Administration, Annual Energy Outlook 2011 

(January 2012), http://go.usa.gov/yAf. 
MAY 2012 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? 9

CBO

B People would drive more as a result of the higher 

CAFE standards because those standards would 

reduce the costs of operating a vehicle. EPA assumed 

that this “rebound effect” would amount to a 

1 percent increase in miles traveled for every 10 percent reduction in operating costs. 

B Automakers would make some use of methods that 

reduce fuel consumption but that do not translate into 

increases in fuel efficiency as measured in the government’s CAFE test protocol. 

B Drivers’ actual fuel economy would be 20 percent 

less than their vehicles’ rated fuel economy as determined for purposes of CAFE compliance. (For electric 

vehicles, the agencies assume that the difference is 

30 percent.)17

To determine how sensitive the estimates of fuel savings 

were to those and other assumptions, EPA systematically 

varied its assumptions to include a range of plausible 

alternatives. Those variations changed outcomes by less 

than 10 percent in all but two cases: one in which the 

rebound effect was twice the size assumed (so that total 

miles driven increased by 2 percent, rather than by 

1 percent, for every 10 percent reduction in the cost of 

driving) and one in which future gasoline prices were 

much higher or much lower than originally assumed.18

With a larger rebound effect or with higher gasoline 

prices, the fuel savings that could be attributed to the 

proposed increases in CAFE standards would fall short of 

EPA’s projections by more than 10 percent. If fuel savings 

were lower than predicted, the decline in gasoline tax 

receipts resulting from the proposed standards would be 

smaller than the amounts shown in Table 1 on page 4. If 

the diminished effects from the proposed standards were 

the result of higher gasoline prices, however, the ultimate 

effect on tax receipts could be the same: Less of the 

decline would be attributable to the proposed standards 

and more would be caused by a decrease in fuel purchases, a result of fuel prices that were higher than EPA 

had assumed. 

Ways to Mitigate the Proposed 

Standards’ Effects on Cash Flows 

To make up the shortfall in revenue projected as a result 

of the proposed CAFE standards, lawmakers could consider various options, including spending reductions, 

transfers from the general fund, and increases in the 

gasoline tax or in revenues obtained from other sources 

dedicated to the Highway Trust Fund.19

In the illustrative example covering the period from 2012 

to 2022, spending from the trust fund would have to be 

reduced by about 10 percent to offset the 21 percent 

reduction in gasoline tax revenues. Lawmakers could allocate such reductions in various ways between the highway 

and mass transit accounts. Regardless of which methods 

were chosen, the decrease in the authority to obligate 

resources from each account would probably have to be 

greater than the required decrease in outlays—or would 

have to start before the shortfall occurred—because it 

usually takes several years to spend a single year’s obligations. (Decreasing spending by 10 percent would offset a 

21 percent decrease in gasoline tax receipts, but it 

would not affect the underlying imbalance between the 

trust fund’s receipts and outlays, which amounts to 

$147 billion from 2012 through 2022 in CBO’s baseline 

projection.)

Transferring more money from the general fund to the 

Highway Trust Fund is the action the Congress took to 

address the shortfall each year from 2008 to 2010. 

Those actions ensured that the fund maintained a positive balance, but they weakened the relationship between 

spending on highways and the taxes imposed on users of 

those highways. Furthermore, with such transfers, the 

17. The increase in the amount of renewable fuel (resulting from the 

RFS) blended into gasoline would cause the gap between on-road 

fuel economy and fuel economy as measured in the government’s 

test to exceed 20 percent because renewable fuel has a lower 

energy content than does gasoline. EPA believes that many factors 

could affect the gap—some, unlike the RFS, would narrow it—so 

the agency assumed that the 20 percent gap would remain 

constant for the period covered by its projections. To the extent 

that the gap was greater than 20 percent, the reduction in fuel 

consumption by light-duty vehicles, and the resulting decline in 

gasoline tax receipts, would be less than CBO has estimated. 

18. See Department of Transportation, Federal Register, vol. 76, 

no. 231 (December 1, 2011), p. 75307, http://go.usa.gov/EdH.

19. For a discussion, see the statement of Joseph Kile, Assistant 

Director for Microeconomic Studies, Congressional Budget 

Office, before the Senate Committee on Finance, The Highway 

Trust Fund and Paying for Highways (May 17, 2011). 
10 HOW WOULD PROPOSED FUEL ECONOMY STANDARDS AFFECT THE HIGHWAY TRUST FUND? MAY 2012

CBO

trust fund will, over time, contribute to budget deficits 

rather than yield a balance between receipts from the 

designated transportation-related excise taxes and outlays 

for federal highway and transit programs. 

An increase of about 5 cents per gallon in the gasoline tax 

would be required to make up the shortfall in revenue 

projected as a result of the proposed CAFE standards. 

(That estimate takes into account a decline in gasoline 

consumption that would be caused by the tax increase.) 

However, fuel taxes impose a proportionately larger burden, as a share of income, on middle- and lower-income 

households (particularly in areas that are not well served 

by public transit) than they do on higher-income households. Moreover, most of the social costs of using a 

highway—including pavement damage, congestion, accidents, and noise—are more closely tied to the number 

of miles a vehicle travels than to the amount of fuel it 

consumes. As a result, a combination of fuel taxes and 

per-mile charges, sometimes called vehicle-miles-traveled 

taxes, could better offset the full costs that highway users 

impose on society. However, the systems necessary to 

administer vehicle-miles-traveled taxes would be more 

complex than those used to collect the existing excise 

taxes on fuels.

This document was prepared by Terry Dinan and 

David Austin of CBO’s Microeconomic Studies 

Division under the general supervision of Chad Shirley. 

Assistance was provided by Mark Booth, Elias Leight, 

and Sarah Puro. This document and other CBO 

publications are available at the agency’s Web site 

(www.cbo.gov).

Douglas W. Elmendorf 

Director