Abstract: New Corporate Average Fuel Economy (CAFE) standards were recently passed in the United States with the twin goals of reducing greenhouse gas emissions and oil use. The new standards represent a dramatic change from recent policy. This paper examines the key features of the new rules, and compares them to previous CAFE standards in terms of flexibility and structure. The importance of consumer preferences and market forces on CAFE outcomes are identified. In the second part of the paper, the perspective of the consumer is explored. Consumer assessments of fuel economy savings with more fuel-efficient vehicles may be biased or incomplete, leading many to argue that there is an “energy efficiency gap” in consumer demand for vehicles. Reasons for such a gap, such as market failures, behavioral responses, and market barriers, are summarized. The implications for policy are discussed, including the role of combining CAFE with other policies.

Abstract: Using individual travel diary data collected before and after the rail transit coverage expansion in urban Beijing, this paper estimates the impact of rail accessibility improvement on the usage of rail transit, automobiles, buses, walking, and bicycling, measured as percent distance traveled by each mode in an individual trip. My results indicate that the average rail transit usage significantly increased, by 98.3% for commuters residing in the zones where the distances to the nearest station decreased because of the expansion, relative to commuters in the zones where the distances did not change. I also find that auto usage significantly decreased, by 19.8%, while the impact on bus usage was small and not statistically significant. Average walking and bicycling distance (combined) increased by 11.8%, indicating that walking and bicycling are complements to urban rail transit, instead of substitutes. Furthermore, I find that estimated changes in auto usage and rail transit usage vary significantly with auto ownership and income.

Abstract: France, Germany, and Sweden link vehicle taxes to the carbon dioxide (CO2) emissions rates of passenger vehicles. Based on new vehicle registration data from 2005–2010, a vehicle’s tax is negatively correlated with its registrations. The effect is somewhat stronger in France than in Germany and Sweden. Taking advantage of the theoretical equivalence between an emissions rate standard and a CO2-based emissions rate tax, we estimate the effect on manufacturers’ profits of reducing emissions rates. For France, a decrease of 5 grams of CO2 per kilometer reduces profits by 24 euros per vehicle. We find considerable heterogeneity across manufactures and countries.

Abstract: This paper explores the policy options available to the United States for regulating greenhouse gas emissions from aircraft under existing law: the Clean Air Act (CAA). Europe has unilaterally and controversially moved to include aviation emissions in its Emissions Trading System. The United States can, however, allow its airlines to escape this requirement by imposing “equivalent” regulation. U.S. aviation emissions rules could also have significant environmental benefits and would limit domestic emissions beyond the reach of the European Union. With new legislation unlikely, the CAA is the only plausible vehicle for such regulation. Title II Part B of the CAA does grant EPA broad regulatory authority over aviation emissions, though this authority has not been used aggressively. EPA could impose meaningful aviation GHG limits and, by using performance standards, give airlines incentives to creatively comply. It might further be possible to allow some forms of emissions trading, though the law is unclear. Emissions by foreign airlines in the United States could be covered under the act, though international law might impose barriers.

Abstract: Using disaggregated confidential household data, we estimate spatial variation in household-level gasoline price elasticities and the welfare effects of gasoline taxes. A novel approach allows us to model a discrete-continuous household choice of vehicle bundles, while disaggregating the choice set and including vehicle-specific fixed effects and unobserved consumer heterogeneity. The mean elasticity of demand for gasoline is -0.67, but with tremendous variation across location and income. We find that rural households have 30 percent more negative welfare impacts than urban households from gasoline taxes. Finally, we explore different policies that can help to mitigate welfare inequalities due to these taxes.

Abstract: In September 2011, the National Highway Traffic Safety Administration and U.S. Environmental Protection Agency promulgated the first-ever federal regulations mandating fuel economy improvements for heavy-duty commercial vehicles. While the performance-based approach to these rules offers familiarity and assurances of fuel economy improvements, it also has some well-known weaknesses. In this paper, we describe fuel economy technologies for the trucking sector, its economic structure, the details of the new fuel economy regulations, and the controversies they sparked. We then address issues raised in reviewing the accompanying regulatory impact analysis. Next, we highlight some flaws of this form of regulation and suggest a variety of alternative, more market-oriented approaches that might work better.

Abstract: “Cash-for-Clunkers” was a $3 billion program that attempted to stimulate the U.S. economy and improve the environment by encouraging consumers to retire older vehicles and purchase more fuel-efficient new vehicles. We investigate the effects of this program on new vehicle sales and the environment. Using Canada as the control group in a difference-in-differences framework, we find that the program increased new vehicle sales by about 0.36 million during July and August of 2009, implying that approximately 45 percent of the spending went to consumers who would have purchased a new vehicle anyway. Our results suggest no gain in sales beyond 2009 and hence no meaningful stimulus to the economy. In addition, the program will reduce CO2 emissions by only 9 to 28.4 million tons, implying a cost per ton ranging from $91 to $288 even after accounting for reduced criteria pollutants.

Abstract: This paper evaluates the effect of fuel prices on new vehicle fuel economy in the eight largest European markets. The analysis spans the years 2002–2007 and uses detailed vehicle registration and specification data to control for policies, consumer preferences, and other potentially confounding factors. Fuel prices have a statistically significant effect on new vehicle fuel economy in Europe, but this estimated effect is much smaller than that for the United States. Within Europe, fuel economy responds more in the United Kingdom and France than in the other large markets. Overall, substantial changes in fuel prices would have relatively small effects on the average fuel economy of new vehicles sold in Europe. We find no evidence that diesel fuel prices have a large effect on the market share of diesel vehicles.

Abstract: Fiscal instruments are potentially among the most effective, and cost-effective, options for addressing externalities related to poor air quality, urban road congestion, and greenhouse gases. This paper takes a case study, focused on Mauritius (a pioneer in the use of green taxes) to illustrate how existing taxes, especially on fuels and vehicles, could be reformed to better address these externalities. We discuss, in particular, an explicit carbon tax; a variety of options for reforming vehicle taxes to meet environmental, equity, and revenue objectives; and a progressive transition to usage-based vehicle taxes to address congestion.

Abstract: To investigate how fuel economy is valued in the Indian car market, we compute the cost to Indian consumers of purchasing a more fuel-efficient vehicle and compare it to the benefit of lower fuel costs over the life of the vehicle. We use hedonic price functions for four market segments (petrol hatchbacks, diesel hatchbacks, petrol sedans, and diesel sedans) to compute 95 percent confidence intervals for the marginal cost to the consumer of an increase in fuel economy. We find that the associated present value of fuel savings falls within the 95 percent confidence interval for some specifications, in all market segments, for the years 2002 through 2006. Thus, we fail to consistently reject the hypothesis that consumers appropriately value fuel economy. When we reject the null hypothesis, the marginal cost of additional fuel economy exceeds the present value of fuel savings, suggesting that consumers may, in fact, be overvaluing fuel economy.

Abstract: This paper presents an overview of the economics literature on the effect of Corporate Average Fuel Economy (CAFE) standards on the new vehicle market. Since 1978, CAFE has imposed fuel economy standards for cars and light trucks sold in the U.S. market. This paper reviews the history of the standards, followed by a discussion of the major upcoming changes in implementation and stringency. It describes strategies that firms can use to meet the standards and reviews the CAFE literature as it applies to the new vehicle market. The paper concludes by highlighting areas for future research in light of the upcoming changes to CAFE.