This paper aims to remove some of the ambiguity surrounding VMT taxes. We use the US EPA MARKALmodel to examine three different versions of a flat-rate mileage tax and monitor its impact on transportation sector So why do we see lower renewable demands under VMT taxes in 2040 compared to fuel taxes? Morespecifically, why are they encouraging heavier production of thermochemical fuels over of cellulosic ethanol? Arational explanation involves the interaction of VMT taxes with the RFS and the blend wall. Earlier we mentionedthat mileage charges lower total ethanol demands, based on the shifts from E85 to E10 by drivers of flex-fuelvehicles. Fewer ethanol demands mean there will now be greater competition amongst producers to meet thereduced demand. Ethanol can be produced using either corn or cellulosic biomass. Corn ethanol is much moreeconomical to produce – therefore it is used to satisfy all of the ethanol needs. Cellulosic ethanol is much moreexpensive to produce and is no longer used. Figure 3 confirms our story showing that VMT charges increase theproportions of corn ethanol consumption. The RFS requires that a minimum level of cellulosic biofuels beproduced. Cellulosic ethanol originally was used to fulfill the requirement. Now that VMT taxes cause it to nolonger being produced, thermochemical gasoline and diesel must step in to fulfill the biofuel requirement.
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