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How do fuel economy standards affect product structure and technology changes? Evidence from China's firm-level data

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  • Xia, Jingwen
  • Zhang, Zibin

Abstract

China's national Corporate Average Fuel Consumption (CAFC) level has decreased significantly after implementing the tightened Phase IV (2016–2020) fuel economy standard. To investigate the causal effects of this tightened standard, we specify a difference-in-differences (DID) model to estimate the effects of this standard on China's traditional internal combustion engine vehicle (ICEV) manufacturers by employing firm-level data from 2013 to 2020. We find that this tightened standard does have a significant causal effect on inducing these manufacturers to reduce their CAFC by incorporating more pure electric vehicles into their product portfolios and reducing average fuel consumption in their traditional ICEVs by adopting currently available fuel-efficiency technologies. However, this tightened standard has not induced these manufacturers to implement innovation activities in fuel efficiency. This paper not only provides new empirical evidence to the growing literature on the impacts of fuel economy standards in developing countries but also sheds light on mechanisms of the impact of fuel economy standards.

Suggested Citation

  • Xia, Jingwen & Zhang, Zibin, 2025. "How do fuel economy standards affect product structure and technology changes? Evidence from China's firm-level data," Energy Economics, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:eneeco:v:143:y:2025:i:c:s0140988325000775
    DOI: 10.1016/j.eneco.2025.108254
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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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