Report

How Do US Passenger Vehicle Fuel Economy Standards Affect Purchases of New and Used Vehicles?

Sep 4, 2018 | Joshua Linn, Xiaoya Dou

Summary

Over the past decade, tightening vehicle fuel economy standards has reduced new vehicle sales and modestly increased the standards’ short-term costs.

Key Findings

  • In proposing to weaken the standards, the Trump administration argues that tighter standards reduce total sales.
  • The effects of standards on new vehicle sales has been disputed, but there is no direct evidence of these effects.
  • We use household-level data from 1996 through 2016 from the Consumer Expenditure Survey.
  • We find that tightening standards by 0.1 percent reduces total purchases by 0.02 percent, or roughly 4,000 units.
  • The lower sales reduce the benefits of tighter standards and increase costs by 15 percent, but only for up to 5 years.

Abstract

Like many energy efficiency standards, passenger vehicle fuel economy and greenhouse gas standards apply to new but not existing vehicles. In theory, such vintage differentiated regulation could raise demand for used vehicles, which would reduce the social welfare gains of tighter vehicle standards. Using household data from 1996 through 2016, which includes periods of stable and tightening standards, we provide the first direct evidence of the effects of standards on choices of new and used vehicles. Tighter standards induce statistically and economically significant shifts from new to used vehicle purchases, which raises welfare costs of tighter standards.