WASHINGTON (March 30, 2017) – The current federal approach to regulating vehicle efficiency has resulted in costlier vehicles, few discernable benefits for consumers and a mess of shifting administrative responsibilities among opportunistic regulators. In a new policy study, R Street Senior Fellow Ian Adams makes the case for a supply-side alternative called “clean tax cuts” as a replacement to the current trilateral regulatory structure.

“Current law requires three rulemaking bodies to coordinate on fuel-economy matters,” Adams said. “We’ve now reached an inflection point, where deep uncertainty and market distortions in the industry are increasing. The only way to fix this problem is to combine the three (Environmental Protection Agency, California Air Resources Board and National Highway Traffic Safety Administration) regimes into one.”

Instead of direct regulation of fuel economy and auto emissions, the R Street plan proposes tax relief to automakers, tied to the degree to which those manufacturers develop less carbon-intensive fleets. The system would provide for cuts in the marginal rates assessed for taxes on capital, including the corporate income tax paid by the automaker and the dividend, capital gains, estate and earned interest taxes paid by its shareholders and bondholders.

“Clean tax cuts are a more flexible and efficient approach to limit problematic emissions,” said Adams. “It would allow manufacturers to consider the degree to which investments in a cleaner fleet are efficient, given the tax incentives, and would align manufacturers’ incentives to innovate more effectively than the current metrics do. It is time to go from three regulators to one, and from the crisis-borne policies of prescription to one focused on innovation.”