IDEAS home Printed from https://ideas.repec.org/p/fip/fedhwp/wp-2014-22.html
   My bibliography  Save this paper

The Effect of Vehicle Fuel Economy Standards on Technology Adoption

Author

Listed:
  • Thomas H. Klier
  • Joshua Linn

Abstract

Many countries are tightening passenger vehicle fuel economy standards. The literature on passenger vehicle standards has used structural models to estimate their welfare effects. This paper provides the first empirical evidence on the effects of recently tightened fuel economy standards on technology adoption. Specifically, it investigates changes in the rate and direction of technology adoption, that is, the extent to which technology is used to increase fuel economy at the expense of other vehicle attributes. We find that recent U.S. and European standards have both increased the rate of technology adoption and affected the direction of technology adoption. Producers reduced horsepower and torque compared to a counterfactual in which fuel economy standards remained unchanged. We estimate opportunity costs from reduced horsepower and torque to be of similar magnitude as the gains from fuel savings.

Suggested Citation

  • Thomas H. Klier & Joshua Linn, 2014. "The Effect of Vehicle Fuel Economy Standards on Technology Adoption," Working Paper Series WP-2014-22, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-2014-22
    as

    Download full text from publisher

    File URL: https://www.chicagofed.org/~/media/publications/working-papers/2014/wp2014-22-pdf.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    2. Greene, David L, 1991. "Short-run Pricing Strategies to Increase Corporate Average Fuel Economy," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 101-114, January.
    3. Joshua Linn, 2008. "Energy Prices and the Adoption of Energy-Saving Technology," Economic Journal, Royal Economic Society, vol. 118(533), pages 1986-2012, November.
    4. Anderson, Michael L. & Auffhammer, Maximillian, 2014. "Pounds that Kill," University of California Transportation Center, Working Papers qt0s47p33c, University of California Transportation Center.
    5. Klier, Thomas & Linn, Joshua, 2013. "Fuel prices and new vehicle fuel economy—Comparing the United States and Western Europe," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 280-300.
    6. 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.
    7. Mark R. Jacobsen, 2013. "Evaluating US Fuel Economy Standards in a Model with Producer and Household Heterogeneity," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 148-187, May.
    8. Michael L. Anderson & Maximilian Auffhammer, 2014. "Pounds That Kill: The External Costs of Vehicle Weight," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 535-571.
    9. Thomas Klier & Joshua Linn, 2010. "The Price of Gasoline and New Vehicle Fuel Economy: Evidence from Monthly Sales Data," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 134-153, August.
    10. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 941-975.
    11. Meghan R. Busse & Christopher R. Knittel & Florian Zettelmeyer, 2013. "Are Consumers Myopic? Evidence from New and Used Car Purchases," American Economic Review, American Economic Association, vol. 103(1), pages 220-256, February.
    12. Andrew Sweeting, 2013. "Dynamic Product Positioning in Differentiated Product Markets: The Effect of Fees for Musical Performance Rights on the Commercial Radio Industry," Econometrica, Econometric Society, vol. 81(5), pages 1763-1803, September.
    13. Koichiro Ito & James M. Sallee, 2018. "The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel Economy Standards," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 319-336, May.
    14. Bento, Antonio M. & Li, Shanjun & Roth, Kevin, 2012. "Is there an energy paradox in fuel economy? A note on the role of consumer heterogeneity and sorting bias," Economics Letters, Elsevier, vol. 115(1), pages 44-48.
    15. 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.
    16. Christopher R. Knittel, 2011. "Automobiles on Steroids: Product Attribute Trade-Offs and Technological Progress in the Automobile Sector," American Economic Review, American Economic Association, vol. 101(7), pages 3368-3399, December.
    17. Thomas Klier & Joshua Linn, 2012. "New‐vehicle characteristics and the cost of the Corporate Average Fuel Economy standard," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 186-213, March.
    18. Pinelopi Koujianou Goldberg, 1998. "The Effects of the Corporate Average Fuel Efficiency Standards in the US," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 1-33, March.
    19. Li, Shanjun & Linn, Joshua & Spiller, Elisheba, 2013. "Evaluating “Cash-for-Clunkers”: Program effects on auto sales and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 175-193.
    20. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
    21. Hunt Allcott, 2013. "The Welfare Effects of Misperceived Product Costs: Data and Calibrations from the Automobile Market," American Economic Journal: Economic Policy, American Economic Association, vol. 5(3), pages 30-66, August.
    22. Thomas Klier & Joshua Linn, 2015. "Using Taxes to Reduce Carbon Dioxide Emissions Rates of New Passenger Vehicles: Evidence from France, Germany, and Sweden," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 212-242, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Klier, Thomas & Linn, Joshua, 2013. "Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards," RFF Working Paper Series dp-13-40, Resources for the Future.
    2. Mathias Reynaert, 2021. "Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(1), pages 454-488.
    3. Rik L. Rozendaal & Herman R. J. Vollebergh, 2021. "Policy-Induced Innovation in Clean Technologies: Evidence from the Car Market," CESifo Working Paper Series 9422, CESifo.
    4. Konishi, Yoshifumi & Managi, Shunsuke, 2020. "Do regulatory loopholes distort technical change? Evidence from new vehicle launches under the Japanese fuel economy regulation," Journal of Environmental Economics and Management, Elsevier, vol. 104(C).
    5. Wang, Yiwei & Miao, Qing, 2021. "The impact of the corporate average fuel economy standards on technological changes in automobile fuel efficiency," Resource and Energy Economics, Elsevier, vol. 63(C).
    6. Doremus, Jacqueline & Helfand, Gloria & Liu, Changzheng & Donahue, Marie & Kahan, Ari & Shelby, Michael, 2019. "Simpler is better: Predicting consumer vehicle purchases in the short run," Energy Policy, Elsevier, vol. 129(C), pages 1404-1415.
    7. Arik Levinson, 2019. "Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(S1), pages 7-36.
    8. West, Jeremy & Hoekstra, Mark & Meer, Jonathan & Puller, Steven L., 2017. "Vehicle miles (not) traveled: Fuel economy requirements, vehicle characteristics, and household driving," Journal of Public Economics, Elsevier, vol. 145(C), pages 65-81.
    9. Soren T. Anderson & James M. Sallee, 2016. "Designing Policies to Make Cars Greener: A Review of the Literature," NBER Working Papers 22242, National Bureau of Economic Research, Inc.
    10. Antonio Bento & Kenneth Gillingham & Kevin Roth, 2017. "The Effect of Fuel Economy Standards on Vehicle Weight Dispersion and Accident Fatalities," NBER Working Papers 23340, National Bureau of Economic Research, Inc.
    11. Yujie Lin & Joshua Linn, 2023. "Environmental Regulation and Product Attributes: The Case of European Passenger Vehicle Greenhouse Gas Emissions Standards," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(1), pages 1-32.
    12. Antonio M. Bento & Mark R. Jacobsen & Christopher R. Knittel & Arthur A. van Benthem, 2020. "Estimating the Costs and Benefits of Fuel-Economy Standards," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 1(1), pages 129-157.
    13. Koichiro Ito & James M. Sallee, 2018. "The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel Economy Standards," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 319-336, May.
    14. Marrouch, Walid & Mourad, Jana, 2019. "Effect of gasoline prices on car fuel efficiency: Evidence from Lebanon," Energy Policy, Elsevier, vol. 135(C).
    15. James Archsmith & Kenneth T. Gillingham & Christopher R. Knittel & David S. Rapson, 2020. "Attribute substitution in household vehicle portfolios," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 1162-1196, December.
    16. Verboven, Frank & Grigolon, Laura & Reynaert, Mathias, 2014. "Consumer valuation of fuel costs and the effectiveness of tax policy: Evidence from the European car market," CEPR Discussion Papers 10301, C.E.P.R. Discussion Papers.
    17. Mathias Reynaert & James M. Sallee, 2021. "Who Benefits When Firms Game Corrective Policies?," American Economic Journal: Economic Policy, American Economic Association, vol. 13(1), pages 372-412, February.
    18. Nicholas Rivers & Brandon Schaufele, 2017. "New vehicle feebates," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(1), pages 201-232, February.
    19. Weber, Sylvain, 2019. "Consumers' preferences on the Swiss car market: A revealed preference approach," Transport Policy, Elsevier, vol. 75(C), pages 109-118.
    20. Leard, Benjamin & Linn, Joshua & Springel, Katalin, 2023. "Vehicle Attribute Tradeoffs and the Distributional Effects of US Fuel Economy and Greenhouse Gas Emissions Standards," RFF Working Paper Series 23-04, Resources for the Future.

    More about this item

    Keywords

    passenger vehicles; U.S. greenhouse gas emissions rate standards; European carbon dioxide emissions rate standards; technology adoption;
    All these keywords.

    JEL classification:

    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedhwp:wp-2014-22. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lauren Wiese (email available below). General contact details of provider: https://edirc.repec.org/data/frbchus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.