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Comparing flexibility mechanisms for fuel economy standards

  • Fischer, Carolyn

Since 1975, the Corporate Average Fuel Economy (CAFE) program has been the main policy tool in the US for coping with the problems of increasing fuel consumption and dependence on imported oil. The program mandates average fuel economy requirements for the new vehicle sales of each manufacturer's fleet, with separate standards for cars and light trucks. The fact that each manufacturer must on its own meet the standards means that the incentives to improve fuel economy are different across manufacturers and vehicle types, although the problems associated with fuel consumption do not make such distinctions. This paper evaluates different mechanisms to offer automakers the flexibility of joint compliance with nationwide fuel economy goals: tradable CAFE credits, feebates, output-rebated fees, and tradable credits with banking. The policies are compared according to the short- and long-run economic incentives, as well as to issues of transparency, implementation, administrative and transaction costs, and uncertainty.

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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 36 (2008)
Issue (Month): 8 (August)
Pages: 3106-3114

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Handle: RePEc:eee:enepol:v:36:y:2008:i:8:p:3106-3114
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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  1. Greene, David L. & Patterson, Philip D. & Singh, Margaret & Li, Jia, 2005. "Corrigendum to "Feebates, rebates and gas-guzzler taxes: a study of incentives for increased fuel economy" [Energy Policy 33 (2005) 757-775]," Energy Policy, Elsevier, vol. 33(14), pages 1901-1902, September.
  2. Suzi Kerr & Richard G. Newell, 2003. "Policy-Induced Technology Adoption: Evidence from the U.S. Lead Phasedown," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 317-343, 09.
  3. Austin, David & Dinan, Terry, 2005. "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 562-582, November.
  4. Sterner, Thomas & Hoglund Isaksson, Lena, 2006. "Refunded emission payments theory, distribution of costs, and Swedish experience of NOx abatement," Ecological Economics, Elsevier, vol. 57(1), pages 93-106, April.
  5. Greene, David L. & Patterson, Philip D. & Singh, Margaret & Li, Jia, 2005. "Feebates, rebates and gas-guzzler taxes: a study of incentives for increased fuel economy," Energy Policy, Elsevier, vol. 33(6), pages 757-775, April.
  6. Greene, David L, 1991. "Short-run Pricing Strategies to Increase Corporate Average Fuel Economy," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 101-14, January.
  7. Ted Gayer, 2004. "The Fatality Risks of Sport-Utility Vehicles, Vans, and Pickups Relative to Cars," Journal of Risk and Uncertainty, Springer, vol. 28(2), pages 103-133, 03.
  8. 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.
  9. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
  10. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
  11. Train, Kenneth E. & Davis, William B. & Levine, Mark D., 1997. "Fees and rebates on new vehicles: Impacts on fuel efficiency, carbon dioxide emissions, and consumer surplus," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 33(1), pages 1-13, March.
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