The new Corporate Average Fuel Economy and greenhouse gas emissions standards will radically change the fuel economy and emissions of US light-duty vehicles. What are the implications of lower gasoline prices for the benefits and costs of the standards?
- In their initial benefit–cost analysis of the 2012–2016 standards, the agencies did not account for consumer or manufacturer behavioral responses to low gasoline prices.
- We augment the agencies' benefit–cost framework and use recent evidence on behavior and gasoline prices to estimate the effects of low gasoline prices on benefits and costs.
- The 25 percent reduction in future gasoline prices reduces the value of fuel savings by 22 percent, allowing for consumer changes in miles traveled and vehicle choice.
- Lower gasoline prices raise compliance costs by about $0.5 billion per year, or about 9 percent of the total net benefits of the program.
- Accounting for these responses does not overturn the agencies' initial conclusions that benefits exceed costs.