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Tradable fuel economy credits: Competition and oligopoly

Author

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  • Rubin, Jonathan
  • Leiby, Paul N.
  • Greene, David L.

Abstract

Corporate average fuel economy (CAFE) regulations specify minimum standards for fuel efficiency that vehicle manufacturers must meet independently. We design a system of tradeable fuel economy credits that allows trading across vehicle classes and manufacturers with and without considering market power in the credit market. We perform numerical simulations to measure the potential cost savings from moving from the current CAFE system to one with stricter standards, but that allows vehicle manufacturers various levels of increased flexibility. We find that the ability for each manufacturer to average credits between its cars and trucks provides a large percentage of the potential savings. As expected, the greatest savings come from the greatest flexibility in the credit system. Market power lowers the potential cost savings to the industry as a whole, but only modestly. Loss in efficiency from market power does not eliminate the gains from credit trading.

Suggested Citation

  • Rubin, Jonathan & Leiby, Paul N. & Greene, David L., 2009. "Tradable fuel economy credits: Competition and oligopoly," Journal of Environmental Economics and Management, Elsevier, vol. 58(3), pages 315-328, November.
  • Handle: RePEc:eee:jeeman:v:58:y:2009:i:3:p:315-328
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    References listed on IDEAS

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    Cited by:

    1. Leard, Benjamin & McConnell, Virginia, 2015. "New Markets for Pollution and Energy Efficiency: Credit Trading under Automobile Greenhouse Gas and Fuel Economy StandardsAbstract: Recent changes to the Corporate Average Fuel Economy (CAFE) standard," Discussion Papers dp-15-16, Resources For the Future.
    2. Changzheng Liu and David L. Greene, 2014. "Vehicle Manufacturer Technology Adoption and Pricing Strategies under Fuel Economy/Emissions Standards and Feebates," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    3. repec:eee:enepol:v:108:y:2017:i:c:p:299-311 is not listed on IDEAS
    4. Thomas Klier & Joshua Linn, 2011. "Corporate Average Fuel Economy Standards and the Market for New Vehicles," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 445-462, October.
    5. Mahlia, T.M.I. & Tohno, S. & Tezuka, T., 2012. "History and current status of the motor vehicle energy labeling and its implementation possibilities in Malaysia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(4), pages 1828-1844.

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