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The Economics of Fuel Economy Standards

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Author Info
Parry, Ian () (Resources for the Future)
Portney, Paul
Harrington, Winston () (Resources for the Future)
Gruenspecht, Howard

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Abstract

This paper discusses several rationales for the Corporate Average Fuel Economy (CAFE) program, including reduced oil dependence, reduced greenhouse gas emissions, and the possibility that fuel saving benefits from higher standards might exceed added vehicle costs. We then summarize what can be said about the welfare effects of tightening standards, accounting for prior fuel taxes, and perverse effects on congestion and traffic accidents through the impact of improved fuel economy on the incentive to drive. Implications of CAFE on local air pollution, and the controversy over CAFE, vehicle weight, and road safety, are also discussed. Finally, we describe ways in which the existing CAFE program could be substantially improved and identify a variety of alternative, and much superior, policy approaches.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-03-44.

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Date of creation: 20 Nov 2003
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Handle: RePEc:rff:dpaper:dp-03-44

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, vol. 91(2), pages 221-40, May. [Downloadable!] (restricted)
  2. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October. [Downloadable!] (restricted)
    Other versions:
  3. Greene, David L, 1991. "Short-run Pricing Strategies to Increase Corporate Average Fuel Economy," Economic Inquiry, Oxford University Press, vol. 29(1), pages 101-14, January.
  4. Kwoka, John E, Jr, 1983. "The Limits of Market-Oriented Regulatory Techniques: The Case of Automotive Fuel Economy," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 695-704, November. [Downloadable!] (restricted)
  5. Richard S.J. Tol & Samuel Fankhauser & Richard G. Richels & Joel B. Smith, 2000. "How Much Damage Will Climate Change Do? Recent Estimates," Working Papers FNU-2, Research unit Sustainability and Global Change, Hamburg University, revised Sep 2000. [Downloadable!]
  6. Bernanke, Ben S. & Gertler, Mark & Waston, Mark, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Working Papers 97-25, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  7. Kleit, Andrew N, 1990. "The Effect of Annual Changes in Automobile Fuel Economy Standards," Journal of Regulatory Economics, Springer, vol. 2(2), pages 151-72, June.
  8. Parry, Ian, 2003. "Comparing Alternative Policies to Reduce Traffic Accidents," Discussion Papers dp-03-07, Resources For the Future. [Downloadable!]
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  9. Parry, Ian & Small, Kenneth, 2002. "Does Britain or the United States Have the Right Gasoline Tax?," Discussion Papers dp-02-12-, Resources For the Future. [Downloadable!]
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  10. Thorpe, Steven G, 1997. "Fuel Economy Standards, New Vehicle Sales, and Average Fuel Efficiency," Journal of Regulatory Economics, Springer, vol. 11(3), pages 311-26, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kenneth A. Small & Kurt Van Dender, 2006. "Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect," Working Papers 050603, University of California-Irvine, Department of Economics. [Downloadable!]
  2. Parry, Ian, 2003. "Comparing Alternative Policies to Reduce Traffic Accidents," Discussion Papers dp-03-07, Resources For the Future. [Downloadable!]
    Other versions:
  3. Sumeet Gulati & Devesh Roy, 2007. "How Standards Drive Taxes: The Political Economy of Tailpipe Pollution," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 7(1), pages 1489-1489. [Downloadable!] (restricted)
  4. Sofronis Clerides & Theodoros Zachariadis, . "Are standards Effective in Improving Automobile Fuel Economy?," University of Cyprus Working Papers in Economics 6-2006, University of Cyprus Department of Economics. [Downloadable!]
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