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Design incentives to increase vehicle size created from the U.S. footprint-based fuel economy standards

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  • Whitefoot, Kate S.
  • Skerlos, Steven J.

Abstract

The recently amended U.S. Corporate Average Fuel Economy (CAFE) standards determine fuel-economy targets based on the footprint (wheelbase by track width) of vehicles such that larger vehicles have lower fuel-economy targets. This paper considers whether these standards create an incentive for firms to increase vehicle size by presenting an oligopolistic-equilibrium model in which automotive firms can modify vehicle dimensions, implement fuel-saving technology features, and trade off acceleration performance and fuel economy. Wide ranges of scenarios for consumer preferences are considered. Results suggest that the footprint-based CAFE standards create an incentive to increase vehicle size except when consumer preference for vehicle size is near its lower bound and preference for acceleration is near its upper bound. In all other simulations, the sales-weighted average vehicle size increases by 2–32%, undermining gains in fuel economy by 1–4mpg (0.6–1.7km/L). Carbon-dioxide emissions from these vehicles are 5–15% higher as a result (4.69×1011–5.17×1011kg for one year of produced vehicles compared to 4.47×1011kg with no size changes), which is equivalent to adding 3–10 coal-fired power plants to the electricity grid each year. Furthermore, results suggest that the incentive is larger for light trucks than for passenger cars, which could increase traffic safety risks.

Suggested Citation

  • Whitefoot, Kate S. & Skerlos, Steven J., 2012. "Design incentives to increase vehicle size created from the U.S. footprint-based fuel economy standards," Energy Policy, Elsevier, vol. 41(C), pages 402-411.
  • Handle: RePEc:eee:enepol:v:41:y:2012:i:c:p:402-411 DOI: 10.1016/j.enpol.2011.10.062
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Klier, Thomas & Linn, Joshua, 2013. "Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards," Discussion Papers dp-13-40, Resources For the Future.
    2. Linn, Joshua, "undated". "Explaining the Adoption of Diesel Fuel Passenger Cars in Europe," Discussion Papers dp-14-08-rev, Resources For the Future.
    3. Koichiro Ito & James M. Sallee, 2014. "The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards," NBER Working Papers 20500, National Bureau of Economic Research, Inc.
    4. Haaf, C. Grace & Morrow, W. Ross & Azevedo, Inês M.L. & Feit, Elea McDonnell & Michalek, Jeremy J., 2016. "Forecasting light-duty vehicle demand using alternative-specific constants for endogeneity correction versus calibration," Transportation Research Part B: Methodological, Elsevier, vol. 84(C), pages 182-210.
    5. Klier, Thomas & Linn, Joshua, 2016. "The effect of vehicle fuel economy standards on technology adoption," Journal of Public Economics, Elsevier, vol. 133(C), pages 41-63.
    6. Zhang, Shaojun & Wu, Ye & Liu, Huan & Huang, Ruikun & Un, Puikei & Zhou, Yu & Fu, Lixin & Hao, Jiming, 2014. "Real-world fuel consumption and CO2 (carbon dioxide) emissions by driving conditions for light-duty passenger vehicles in China," Energy, Elsevier, vol. 69(C), pages 247-257.
    7. Lutsey, Nicholas, 2012. "Regulatory and technology lead-time: The case of US automobile greenhouse gas emission standards," Transport Policy, Elsevier, vol. 21(C), pages 179-190.
    8. REYNAERT, Mathias, 2014. "Abatement strategies and the cost of environmental regulation: Emission standards on the European car market," Working Papers 2014025, University of Antwerp, Faculty of Applied Economics.
    9. Ullman, Darin F., 2016. "A difficult road ahead: Fleet fuel economy, footprint-based CAFE compliance, and manufacturer incentives," Energy Economics, Elsevier, vol. 57(C), pages 94-105.
    10. McConnell, Virginia, 2013. "The New CAFE Standards: Are They Enough on Their Own?," Discussion Papers dp-13-14, Resources For the Future.
    11. Hao, Han & Wang, Sinan & Liu, Zongwei & Zhao, Fuquan, 2016. "The impact of stepped fuel economy targets on automaker's light-weighting strategy: The China case," Energy, Elsevier, vol. 94(C), pages 755-765.
    12. Louis Kaplow, 2017. "Optimal Regulation with Exemptions," NBER Working Papers 23887, National Bureau of Economic Research, Inc.
    13. Linn, Joshua, 2014. "Explaining the Adoption of Diesel Fuel Passenger Cars in Europe," Discussion Papers dp-14-08, Resources For the Future.
    14. Helfand, Gloria & McWilliams, Michael & Bolon, Kevin & Reichle, Lawrence & Sha, Mandy & Smith, Amanda & Beach, Robert, 2016. "Searching for hidden costs: A technology-based approach to the energy efficiency gap in light-duty vehicles," Energy Policy, Elsevier, vol. 98(C), pages 590-606.
    15. Brandenburg, Marcus & Govindan, Kannan & Sarkis, Joseph & Seuring, Stefan, 2014. "Quantitative models for sustainable supply chain management: Developments and directions," European Journal of Operational Research, Elsevier, vol. 233(2), pages 299-312.
    16. repec:eee:resene:v:49:y:2017:i:c:p:99-112 is not listed on IDEAS
    17. Damien Sheehan-Connor, 2012. "Life and Death at the CAFE: Predicting the Impact of Fuel Economy Standards on Vehicle Safety," Wesleyan Economics Working Papers 2012-002, Wesleyan University, Department of Economics.
    18. repec:eee:enepol:v:109:y:2017:i:c:p:279-287 is not listed on IDEAS
    19. Tang, Christopher S. & Zhou, Sean, 2012. "Research advances in environmentally and socially sustainable operations," European Journal of Operational Research, Elsevier, vol. 223(3), pages 585-594.

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