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: 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: “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.

Stephen L. Johnson, Adminstrator of the U.S. Environmental Protection Agency