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Tradable fuel economy credits: Competition and oligopoly

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  • Rubin, Jonathan
  • Leiby, Paul N.
  • Greene, David L.
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    Abstract

    Corporate average fuel economy (CAFE) regulations specify minimum standards for fuel efficiency that vehicle manufacturers must meet independently. We design a system of tradeable fuel economy credits that allows trading across vehicle classes and manufacturers with and without considering market power in the credit market. We perform numerical simulations to measure the potential cost savings from moving from the current CAFE system to one with stricter standards, but that allows vehicle manufacturers various levels of increased flexibility. We find that the ability for each manufacturer to average credits between its cars and trucks provides a large percentage of the potential savings. As expected, the greatest savings come from the greatest flexibility in the credit system. Market power lowers the potential cost savings to the industry as a whole, but only modestly. Loss in efficiency from market power does not eliminate the gains from credit trading.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

    Volume (Year): 58 (2009)
    Issue (Month): 3 (November)
    Pages: 315-328

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    Handle: RePEc:eee:jeeman:v:58:y:2009:i:3:p:315-328

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    Web page: http://www.elsevier.com/locate/inca/622870

    Related research

    Keywords: GHG Credits Cost-benefit Socioeconomic Energy conservation;

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    Cited by:
    1. Thomas H. Klier & Joshua Linn, 2011. "Corporate average fuel economy standards and the market for new vehicles," Working Paper Series WP-2011-01, Federal Reserve Bank of Chicago.
    2. Mahlia, T.M.I. & Tohno, S. & Tezuka, T., 2012. "History and current status of the motor vehicle energy labeling and its implementation possibilities in Malaysia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(4), pages 1828-1844.

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