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CAFE in the city — A spatial analysis of fuel economy standards

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  • Marz, Waldemar
  • Goetzke, Frank

Abstract

We identify and examine a new effect of fuel economy (CAFE) standards on welfare through a long-run spatial expansion of the urban form (“urban adjustment effect”) caused by lower per-mile driving costs and the distortion in the vehicle market due to CAFE standards. By integrating household-level vehicle choice and the automobile market into a calibrated monocentric city model, we find that, for a carbon emission decrease of 80 percent, the long-run urban adjustment effect adds a relevant monthly welfare cost of up to 20 Dollars to the medium-run welfare cost of CAFE compliance of 128 Dollars per month (+15 percent). This welfare cost can be alleviated by about one third through the combination of CAFE with urban growth boundaries. For fuel taxes, on the other hand, the urban adjustment effect causes a welfare gain of a similar magnitude.

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  • Marz, Waldemar & Goetzke, Frank, 2022. "CAFE in the city — A spatial analysis of fuel economy standards," Journal of Environmental Economics and Management, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:jeeman:v:115:y:2022:i:c:s0095069622000729
    DOI: 10.1016/j.jeem.2022.102711
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    3. Sangho Lee & Injae Eom & Beomho Lee & Janghyeok Won, 2023. "Driving Characteristics Analysis Method Based on Real-World Driving Data," Energies, MDPI, vol. 17(1), pages 1-11, December.
    4. Tesemma, Tewodros, 2023. "Encouraging adoption of fuel-efficient vehicles – A policy reform evaluation from Ethiopia," Working Papers in Economics 838, University of Gothenburg, Department of Economics.

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    More about this item

    Keywords

    Fuel economy standards; Welfare cost; Fuel tax; Monocentric city;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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