Do You Benefit from Auto Fuel Economy Standards?

WASHINGTON—As is the case with a lot of things, the fuel economy and greenhouse gas emissions standards that your vehicle is built to meet can draw polarized reactions from consumers. Fans of tighter standards claim that they benefit from improved fuel savings. Critics argue that tighter standards can do harm if the buyer wants more engine power and less fuel economy. Is there a real winner?

The question is timely. Over the next year, the US Environmental Protection Agency and Department of Transportation will finalize standards for new passenger vehicle fuel economy and greenhouse gas emissions through the year 2025. The new fuel economy standards will be tighter than ever on many models.

In a new blog and report just posted by Resources for the Future (RFF), Senior Fellow Joshua Linn, Fellow Benjamin Leard and Post Doctoral Fellow Yichen Christy Zhou report that, “the standards have had approximately zero net effect on new vehicle consumer wellbeing.” One caveat: The authors did not include public benefits related to climate change and energy security.

The analysis considers two opposing effects of tighter standards on the well-being of new vehicle buyers. First, the standards provide fuel-saving technologies that often is of value—resulting in both fuel savings for drivers and sales that exceed the cost of adopting the technologies.

Second, standards affect other vehicle attributes that new vehicle consumers care about. For example, manufacturers can reduce the relative price of high fuel economy vehicles to encourage consumers to buy those vehicles.

In their new report, the authors focus on consumer valuation in response to changes in fuel economy and performance that occurred in the 2010s, when fuel economy and emissions standards began tightening. They find that new vehicle consumers undervalue fuel savings, paying about 54 cents for 1 dollar of present discounted fuel savings. However, they also find that consumers are willing to pay about $1,100 for a 1-second reduction in the time needed to accelerate from 0 to 60 miles per hour (a performance improvement of about 12 percent).

Because many consumers value performance so highly, the requirement for greater fuel economy means those consumers must give up exactly what they prize, which leaves some consumers worse off. So on balance, tighter standards have had approximately zero effect on new vehicle buyers—the benefits to those consumers, reducing fuel costs, are roughly offset by the consumer costs of trading off performance for fuel economy.

So for the moment, critics and fans are getting what they want—and do not want—equally.

Read the full report: How Much Do Consumers Value Fuel Economy and Performance? Evidence from Technology Adoption.

Read the blog post: Do Consumers Benefit from Automobile Fuel Economy and Greenhouse Gas Standards?