I. Overview For close to a century fuel taxes have been used to finance the building, operations, and maintenance of the US transportation system. The contributions of tax revenues in real terms, however, have been consistently declining in the recent decade as average national tax rates have not budged since 1993 and failed to keep up with inflation – resulting in substantial losses in purchasing power. This coupled with the fact that average fuel economy levels for newer light-duty vehicles continues to improve given recent government legislation, fewer tax revenues can be recouped. Costs associated with constructing and maintaining transportation systems have increased over time, growing at faster rates than fuel tax revenues. The impacts of declining revenue streams on US highways have led to almost $130 billion in economic losses (in the form of increased vehicle repair and time costs). In order to correct the problem of eroding tax revenues groups such as the National Surface Transportation Infrastructure Finance Commission support the replacement of the current tax system with a tax on vehicle miles traveled (VMT) with hopes of encouraging less driving and creating more sustainable streams of revenue. Unlike a fuel tax, mileage charges directly target miles driven by consumers, which helps to lower fuel use and driving externality costs. One of the primary issues with the tax, however, is that it does not encourage the use of more fuel-efficient vehicles. So any reductions in emissions achieved by less driving could be displaced by the emissions of more heavily used, dirtier conventional automobiles. Our study compares a national VMT tax with the existing volumetric fuel tax system, observing the interaction between mileage charges and enacted policies such as the Renewable Fuels Standard (RFS) and the Corporate Average Fuel Economy (CAFE) Standard. II. Methodology The responsiveness of LDVs to a series of mileage taxes is observed using an elastic version of the US EPA MARKAL model. MARKAL is a bottom-up, demand-driven, partial equilibrium model that relies on linear optimization techniques to simultaneously minimize total system costs and maximize net total surplus. Exogenous end-use demands are satisfied using the most efficient and least-cost combination of technologies and primary resource usage rates chosen by the model. It operates on data supplied by the EPA National MARKAL database, which includes information on the five primary economic sectors. Existing fuel taxes are compared with three versions of a mileage-based tax. The first is a VMT charge ($/mile) set equivalent to the baseline national average gasoline tax ($0.49/gallon) and increases 1% annually. The second tax is tuned to achieve similar tax revenues as our series of baseline volumetric fuel taxes over time. The final VMT charge internalizes congestion, air pollution, oil dependency, and other driving-related externality costs. It is imperative that consideration for current environmental regulations and programs that either directly or indirectly impact the transportation sector is given to better understand differences in the ways mileage taxes interact with these policies. The current Renewable Fuels Standard is modeled alongside President Obama’s recent increases in CAFE standards which require that average fuel economy reach 54.5 miles per gallon by 2025 for LDVs. Plug-in hybrid-electric vehicles (PHEV) purchased after 2010 are eligible for a tax credit worth up to $7,500 based on the battery capacity. For simplicity, we assume that the $7,500 credit is applicable to all PHEVs and is deducted from annual investment costs for each type of plug-in hybrid vehicle III. Results Our first series of results in which we compare current fuel taxes to VMT tax rates set according to baseline fuel economy levels (Case 1), suggest that mileage charges begin to generate more revenue after complete implementation of newer CAFÉ standards in year 2025. Consumers respond to higher CAFE standards by driving more energy-efficient vehicles like PHEVs. These vehicles escape paying fuel taxes either partially or completely by using electricity instead of gasoline – thereby resulting in fewer fuel tax revenues. Under mileage taxes they face similar taxes as conventional vehicles and will now have a greater contribution to tax revenues. Case 2 directly contrasts fuel taxes and revenue-neutral mileage taxes. We discover that the revenue-neutral taxes fail to achieve any additional reductions in VMT. And the LDV fleet will experience an average loss in energy-efficiency as the tax structure switches from fuel to mileage taxes. CAFE increases and PHEV credits modeled help ensure that minimum fleet average efficiency will be achieved. However, VMT taxes prevent efficiency levels from improving much beyond this point partly due to their discouraging of the use of plug-in hybrid vehicles. Market responses to VMT taxes urge the substitution of the heavier gasoline-ethanol blend E85 (15% gasoline/85% ethanol) to one comprised of only 10% ethanol (E10). The implications of lower ethanol demands on the RFS are significant, as cellulosic ethanol is no longer used to meet fuel demands. However, there is a ramp up in the production of cheaper thermochemical fuels in order to satisfy RFS biofuel requirements. Similar to Case 2, internalizing driving externalities within VMT rates (Case 3) produce far greater reductions in miles driven, fuel use, and transportation sector emissions than fuel taxes internalizing similar externality costs. The switch from E85 to E10 occurs as well but at a much larger magnitude given higher VMT tax rates. IV. Conclusion Our work removes some of the ambiguity surrounding VMT taxes by confirming that mileage taxes have the ability to produce more revenues at both the state and federal levels at the expense of the overall LDV fleet becoming less fuel-efficient; and depending on their level of stringency, they can produce rather noticeable reductions in miles driven, total energy use, and greenhouse gas emissions. There exists potential for economic losses which continue to deepen as VMT tax rates increase. In other words, the higher VMT tax rates become, the more harmful they will be to US economic performance. Switching tax schemes showcased the possibility of spurring variations in the types of “green” fuels consumed. Mileage taxes have proven that they could potentially jumpstart the production of thermochemical gasoline and diesel replacing cellulosic ethanol as a part of the cellulosic biofuel requirement identified under the national RFS.