Analysis of Auto Industry and Consumer Response to Regulations and Technological Change, and Customization of Consumer Response Models in Support of AB 1493 Rulemaking

On July 22, 2002, Governor Gray Davis signed AB 1493 into law. This law requires that the California Air Resources Board (CARB) propose rules that would reduce greenhouse gas emissions of light duty vehicles in California. The goal of this study was to provide insight into industry and consumer response to government regulations, especially as they might relate to future regulations that reduce greenhouse gas emissions from vehicles. This report addresses industry and consumer behavior with respect to emissions, safety, and energy use in the U.S. and Europe over the past few decades. We created and analyzed a large data set of vehicle characteristics, sales, and prices, vehicle financing practices, and exogenous factors such as income, for the period 1975-2003, and supplemented the data analysis with case studies of the introduction of oxidation and three-way catalysts, air bags, and hybrid electric vehicles in the US; and diesel cars in Europe. We found that costs imposed on vehicles due to US emissions and safety regulations have been significant — somewhere between $2500 and $4000 per vehicle. These costs represent up to 1/3 of vehicle price increases since the 1970s. Whether one considers these costs to be large or small, they had little discernible effect on industry performance and activities. The cost increases have been largely accommodated within normal business and market planning processes of companies.