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Design incentives to increase vehicle size created from the U.S. footprint-based fuel economy standards

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  • Whitefoot, Kate S.
  • Skerlos, Steven J.
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    Abstract

    The recently amended U.S. Corporate Average Fuel Economy (CAFE) standards determine fuel-economy targets based on the footprint (wheelbase by track width) of vehicles such that larger vehicles have lower fuel-economy targets. This paper considers whether these standards create an incentive for firms to increase vehicle size by presenting an oligopolistic-equilibrium model in which automotive firms can modify vehicle dimensions, implement fuel-saving technology features, and trade off acceleration performance and fuel economy. Wide ranges of scenarios for consumer preferences are considered. Results suggest that the footprint-based CAFE standards create an incentive to increase vehicle size except when consumer preference for vehicle size is near its lower bound and preference for acceleration is near its upper bound. In all other simulations, the sales-weighted average vehicle size increases by 2–32%, undermining gains in fuel economy by 1–4mpg (0.6–1.7km/L). Carbon-dioxide emissions from these vehicles are 5–15% higher as a result (4.69×1011–5.17×1011kg for one year of produced vehicles compared to 4.47×1011kg with no size changes), which is equivalent to adding 3–10 coal-fired power plants to the electricity grid each year. Furthermore, results suggest that the incentive is larger for light trucks than for passenger cars, which could increase traffic safety risks.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 41 (2012)
    Issue (Month): C ()
    Pages: 402-411

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    Handle: RePEc:eee:enepol:v:41:y:2012:i:c:p:402-411

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    Web page: http://www.elsevier.com/locate/enpol

    Related research

    Keywords: Fuel economy; Passenger vehicles; Policy incentives;

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    Cited by:
    1. McConnell, Virginia, 2013. "The New CAFE Standards: Are They Enough on Their Own?," Discussion Papers dp-13-14, Resources For the Future.
    2. Tang, Christopher S. & Zhou, Sean, 2012. "Research advances in environmentally and socially sustainable operations," European Journal of Operational Research, Elsevier, vol. 223(3), pages 585-594.
    3. Klier, Thomas & Linn, Joshua, 2013. "Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards," Discussion Papers dp-13-40, Resources For the Future.
    4. Linn, Joshua, 2014. "Explaining the Adoption of Diesel Fuel Passenger Cars in Europe," Discussion Papers dp-14-08, Resources For the Future.
    5. Brandenburg, Marcus & Govindan, Kannan & Sarkis, Joseph & Seuring, Stefan, 2014. "Quantitative models for sustainable supply chain management: Developments and directions," European Journal of Operational Research, Elsevier, vol. 233(2), pages 299-312.
    6. Damien Sheehan-Connor, 2012. "Life and Death at the CAFE: Predicting the Impact of Fuel Economy Standards on Vehicle Safety," Wesleyan Economics Working Papers 2012-002, Wesleyan University, Department of Economics.

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