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A Green Light for Environment, or a Green Light for Protection? The EU-US Dispute Over US Corporate Average Fuel Economy Regulations


  • Francois, Joseph
  • Nordström, Håkan


The US Corporate Average Fuel Economy (CAFE) regulation mandates, subject to a civil penalty, producers to achieve a certain fleet average fuel economy on sales of new passenger cars. Analysing the incentive effects of CAFE, we find that it affords differential tax treatment to car models with identical fuel economy, and therefore differential incentives for improvements. In fact, the incentives may be negative for producers that specialize in small or large models. This casts doubt over the environmental merits of fleet averaging. Moreover, product-mix taxes can be abused by exploiting the specialization patterns of domestic and foreign firms.

Suggested Citation

  • Francois, Joseph & Nordström, Håkan, 1996. "A Green Light for Environment, or a Green Light for Protection? The EU-US Dispute Over US Corporate Average Fuel Economy Regulations," CEPR Discussion Papers 1373, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1373

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    More about this item


    Corporate Average Fuel Economy (CAFE); GATT; Trade and Environment; Trade Dispute;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)


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