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Comparing flexibility mechanisms for fuel economy standards

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  • Fischer, Carolyn

Abstract

Since 1975, the Corporate Average Fuel Economy (CAFE) program has been the main policy tool in the US for coping with the problems of increasing fuel consumption and dependence on imported oil. The program mandates average fuel economy requirements for the new vehicle sales of each manufacturer's fleet, with separate standards for cars and light trucks. The fact that each manufacturer must on its own meet the standards means that the incentives to improve fuel economy are different across manufacturers and vehicle types, although the problems associated with fuel consumption do not make such distinctions. This paper evaluates different mechanisms to offer automakers the flexibility of joint compliance with nationwide fuel economy goals: tradable CAFE credits, feebates, output-rebated fees, and tradable credits with banking. The policies are compared according to the short- and long-run economic incentives, as well as to issues of transparency, implementation, administrative and transaction costs, and uncertainty.

Suggested Citation

  • Fischer, Carolyn, 2008. "Comparing flexibility mechanisms for fuel economy standards," Energy Policy, Elsevier, vol. 36(8), pages 3106-3114, August.
    • Handle: RePEc:eee:enepol:v:36:y:2008:i:8:p:3106-3114
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    References listed on IDEAS

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    1. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.
    2. Parry, Ian W.H., 2012. "Reforming the tax system to promote environmental objectives: An application to Mauritius," Ecological Economics, Elsevier, vol. 77(C), pages 103-112.
    3. Rozenberg, Julie & Vogt-Schilb, Adrien & Hallegatte, Stephane, 2014. "Transition to clean capital, irreversible investment and stranded assets," Policy Research Working Paper Series 6859, The World Bank.
    4. Adamos Adamou & Sofronis Clerides & Theodoros Zachariadis, 2011. "Designing Carbon Taxation Schemes for Automobiles: A Simulation Exercise for Germany," Working Papers 2011.96, Fondazione Eni Enrico Mattei.
    5. Werner Antweiler & Sumeet Gulati, 2013. "Market-Based Policies for Green Motoring in Canada," Canadian Public Policy, University of Toronto Press, vol. 39(s2), pages 81-94, August.
    6. Adamos Adamou & Sofronis Clerides & Theodoros Zachariadis, 2012. "Assessment of CO2-Oriented Vehicle Tax Reforms: A Case Study of Greece," University of Cyprus Working Papers in Economics 04-2012, University of Cyprus Department of Economics.
    7. Mahlia, T.M.I. & Tohno, S. & Tezuka, T., 2013. "International experience on incentive program in support of fuel economy standards and labelling for motor vehicle: A comprehensive review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 25(C), pages 18-33.
    8. Adamos Adamou & Sofronis Clerides & Theodoros Zachariadis, 2012. "Trade-offs in CO2-Oriented Vehicle Tax Reforms: A Case Study of Greece," Working Paper series 33_12, Rimini Centre for Economic Analysis.
    9. Itamar Milrad, 2018. "GREEN TAXATION: THE INFLUENCE AND DESIRABILITY OF THE FEEBATE SCHEME IN THE ISRAELI NEW CAR MARKETIn August 2009, a “green taxation”," Israel Economic Review, Bank of Israel, vol. 16(2), pages 1-36.
    10. Kangda Chen & Fuquan Zhao & Han Hao & Zongwei Liu & Xinglong Liu, 2021. "Hierarchical Optimization Decision-Making Method to Comply with China’s Fuel Consumption and New Energy Vehicle Credit Regulations," Sustainability, MDPI, vol. 13(14), pages 1-25, July.
    11. Oliver, Hongyan H. & Gallagher, Kelly Sims & Tian, Donglian & Zhang, Jinhua, 2009. "China's fuel economy standards for passenger vehicles: Rationale, policy process, and impacts," Energy Policy, Elsevier, vol. 37(11), pages 4720-4729, November.
    12. Carl-Friedrich Elmer, 2010. "CO2-Emissionsstandards für Personenkraftwagen als Instrument der Klimapolitik im Verkehrssektor: Rationalität, Gestaltung und Wechselwirkung mit dem Emissionshandel," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 79(2), pages 160-178.
    13. Timilsina, Govinda R. & Dulal, Hari B., 2009. "Regulatory instruments to control environmental externalities from the transport sector," European Transport \ Trasporti Europei, ISTIEE, Institute for the Study of Transport within the European Economic Integration, issue 41, pages 80-112.
    14. repec:boi:isrerv:v:16:y:2019:i:2:p:1-36 is not listed on IDEAS
    15. Timilsina, Govinda R. & Dulal, Hari B., 2009. "A review of regulatory instruments to control environmental externalities from the transport sector," Policy Research Working Paper Series 4867, The World Bank.
    16. Tryfonas Christodoulou & Sofronis Clerides, 2012. "Emissions-Based Vehicle Tax Reform for Cyprus: A Simulation Analysis," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 6(1), pages 3-20, June.
    17. Malina, Christiane, 2016. "The environmental impact of vehicle circulation tax reform in Germany," CAWM Discussion Papers 86, University of Münster, Münster Center for Economic Policy (MEP).

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