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Estimating the Costs and Benefits of Fuel-Economy Standards

Author

Listed:
  • Antonio M. Bento
  • Mark R. Jacobsen
  • Christopher R. Knittel
  • Arthur A. van Benthem

Abstract

Fuel-economy standards for new vehicles are a primary policy instrument in many countries to reduce the carbon footprint of the transportation sector. These standards have many channels of costs and benefit, impacting sales, composition, vehicle attributes, miles traveled and externalities in the new-car fleet, as well as the composition and size of the used fleet. We develop a tractable analytical framework to examine the welfare effects of fuel-economy standards, and apply it to the recent government proposal to roll back fuel-economy standards. We find that our combined, multi-market vehicle choice model implies that the proposal would increase the size of the vehicle fleet over time, and also generates smaller welfare gains than models with a less rich structure of the vehicle market, such as the one used in the analysis associated with the 2018 Notice of Proposed Rulemaking (NPRM) announcement. The disparities across the two models appear to result from the absence of feedback effects in the NPRM analysis. We stress the importance of instead using a multi-market vehicle choice model to provide the most accurate predictions of costs and benefits. We also derive bounds that can serve as a check on the theoretical consistency of such analyses, and that offer insights into the magnitudes of potential errors resulting from imperfect multi-market integration.

Suggested Citation

  • Antonio M. Bento & Mark R. Jacobsen & Christopher R. Knittel & Arthur A. van Benthem, 2019. "Estimating the Costs and Benefits of Fuel-Economy Standards," NBER Working Papers 26309, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26309
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    References listed on IDEAS

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    1. repec:aea:aejpol:v:10:y:2018:i:4:p:211-42 is not listed on IDEAS
    2. Sallee, James M. & West, Sarah E. & Fan, Wei, 2016. "Do consumers recognize the value of fuel economy? Evidence from used car prices and gasoline price fluctuations," Journal of Public Economics, Elsevier, vol. 135(C), pages 61-73.
    3. Hunt Allcott & Nathan Wozny, 2014. "Gasoline Prices, Fuel Economy, and the Energy Paradox," The Review of Economics and Statistics, MIT Press, vol. 96(5), pages 779-795, December.
    4. repec:aen:journl:ej39-1-bento is not listed on IDEAS
    5. 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.
    6. 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.
    7. Goldberg, Pinelopi Koujianou, 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.
    8. Mark R. Jacobsen, 2013. "Fuel Economy and Safety: The Influences of Vehicle Class and Driver Behavior," American Economic Journal: Applied Economics, American Economic Association, vol. 5(3), pages 1-26, July.
    9. repec:eee:pubeco:v:152:y:2017:i:c:p:34-46 is not listed on IDEAS
    10. Gruenspecht, Howard K, 1982. "Differentiated Regulation: The Case of Auto Emissions Standards," American Economic Review, American Economic Association, vol. 72(2), pages 328-331, May.
    11. Mark R. Jacobsen & Arthur A. van Benthem, 2015. "Vehicle Scrappage and Gasoline Policy," American Economic Review, American Economic Association, vol. 105(3), pages 1312-1338, March.
    12. 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.
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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