The objective of this chapter is to identify the possible tax revenue losses due to improved fuel efficiency of light-duty vehicles in Brazil and the United States (US). To do this, the authors project the evolution of fuel consumption in the light vehicle segment over a horizon to 2035 through the creation of a baseline and an alternative scenario, the latter including increased efficiency of light vehicles. This projection shows that the tax revenue loss due to an increase in light vehicle energy efficiency in Brazil and in the US can reach R$ 8.8 billion and US$ 5.4 billion in 2035, respectively. The isolated analysis of this tax revenue loss in the U.S. indicates that it could be compensated by a slight increase of the gasoline tax. In the Brazilian case, it would be necessary to increase federal taxes by R$ 0.13 per liter to avoid a decline in tax revenue.
TopIntroduction
Transportation plays a fundamental role in countries’ socioeconomic well-being and national progress (Belt & Feitelson, 1991; Medlock III & Soligo, 2001). However, the various means of transport are major consumers of energy, accounting for roughly 20% of energy consumed in the world in 2009 (DOE, 2010a), making the sector a focus of efforts to improve energy efficiency.
Today the transport sector is characterized both by its unbalanced reliance on transport modes, heavily skewed to roadway transport, and strong dependence on petroleum-based fuels. According to the International Energy Agency (IEA, 2008a), about 95% of the world’s energy consumption in the transport sector is based on petroleum products1.
This dependence on petroleum raises challenges related to global climate change. In 2004, the transport sector accounted for 20% of the total anthropogenic CO2 emissions, with the road sector, especially light vehicles, being mainly responsible for these emissions2 (IPCC, 2007). This petroleum dependence is also a matter of particular concern for oil-importing countries such as the United States.
Because of the potential impact of climate changes, particularly global warming, there is a growing need to reduce emissions of CO2 and other greenhouse gases. Among the ways to do this are increased use of fuels from renewable sources (Pacala & Socolow, 2004; Hubard, 2010; Liaquat et. al., 2010), such as ethanol and biodiesel, a shift to transport modes (Schipper et. al., 1997; Ramanathan, 2000; Timilsina & Shrestha, 2009) that are less energy intensive and enhanced energy efficiency of vehicle fleets (An & Sauer, 2004; ICTT, 2007). These measures have the additional advantage of reducing dependence on petroleum, much of which is produced in politically unstable regions and/or entails other environmental risks to extract.
However, as indicated by Moraes (2005), the greater penetration of changes able to alter the current standards and structures in the transport sector depends on various political and economic factors and requires a concerted long-term effort. The main obstacle is the fact that petroleum has many advantages, such as high energy density, low cost in relation to other sources and huge existing global infrastructure for production and distribution (Szklo & Schaeffer, 2006). Added to this is the fact that vehicles have long lifetimes: a typical passenger car lasts 15 or more years (Meyer, 2001).
In order to reduce petroleum consumption in the transport sector, several energy policy instruments can be adopted, such as vehicle standardization and tax incentives for fuels with lower environmental impact (IPCC, 2000; IEA, 2000). However, from an economic standpoint, some of these policies can affect government revenues by reducing the tax collected on fossil fuels (Kleit, 2002). Nowadays, this is one of the major sources of revenue for governments3, given the low short-term price elasticity of the fuels burned in light vehicles (Espey, 1998). This same inelasticity means the loss of revenue is less than proportional to tax incentives, especially in the short term (Cavalcanti et al., 2008). Over the long term this allows adjustment of the tax system, for example through increased taxation of fuels with high carbon content (Bierbaum & Friedman, 1991).