Vehicle Attribute Tradeoffs and the Distributional Effects of US Fuel Economy and Greenhouse Gas Emissions Standards
This working paper presents welfare and distributional effects of US passenger vehicle fuel economy and greenhouse gas standards between 2012 and 2022.
This paper presents welfare and distributional effects of US passenger vehicle fuel economy and greenhouse gas standards between 2012 and 2022. We build an equilibrium model that allows for endogenous markups, market shares, and nonprice attributes. The model includes fixed and variable costs of raising fuel economy, manufacturer substitution between fuel economy and performance, and heterogeneous consumer preferences and manufacturer costs. We estimate all demand and supply parameters from observed consumer and manufacturer choices. We find that the standards have increased social welfare and that consumer undervaluation of fuel cost savings accounts for most of the social benefits. Manufacturers achieve most fuel economy improvements by trading off horsepower rather than adjusting prices or adding fuel-saving technology. Due to this compliance strategy, the standards have been progressive because high-income households value horsepower much more than low-income households do. Consumer undervaluation of fuel cost savings also contributes to progressivity.
Josh Linn is a senior fellow at RFF. His research centers on the effects of environmental policies and economic incentives for new technologies in the transportation, electricity, and industrial sectors.
Common Resources — Mar 30, 2023
Insights Gained from the Past Decade of Federal Standards for Passenger Vehicle Fuel Economy and Greenhouse Gas Emissions
Who has benefited the most from the tighter federal fuel economy and greenhouse gas standards for passenger vehicles?
Working Paper — Mar 21, 2023
Emissions Standards and Electric Vehicle Targets for Passenger Vehicles
This working paper analyzes welfare and distributional effects of nested US policies affecting plug-in vehicles: state-level zero-emission vehicle standards and national fuel economy and greenhouse gas standards for passenger vehicles.
Media Highlight — Feb 16, 2023
USA Today: "Electricity Bills Are Surging, Is It Still Cheaper to Charge an EV than Get Gas? It Depends."
Fellow Beia Spiller, who directs RFF's Transportation Program, shares her thoughts on the relative expense of EV charging vs. gas refueling.