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Estimating the Costs and Benefits of Fuel-Economy Standards

In: Environmental and Energy Policy and the Economy, volume 1

Author

Listed:
  • Antonio M. Bento
  • Mark R. Jacobsen
  • Christopher R. Knittel
  • Arthur A. van Benthem
Abstract
Fuel-economy standards for new vehicles are a primary policy instrument in many countries to reduce the carbon footprint of the transportation sector. These standards have many channels of costs and benefit, affecting sales, composition, vehicle attributes, miles traveled, and externalities in the new-car fleet, as well as the composition and size of the used fleet. We develop a tractable analytical framework to examine the welfare effects of fuel-economy standards and apply it to the recent government proposal to roll back fuel-economy standards. We find that our combined, multimarket vehicle-choice model implies that the proposal would increase the size of the vehicle fleet over time and generates smaller welfare gains than models with a less rich structure of the vehicle market, such as the one used in the analysis associated with the 2018 Notice of Proposed Rulemaking (NPRM) announcement. The disparities across the two models appear to result from the absence of feedback effects in the NPRM analysis. We stress the importance of instead using a multimarket vehicle-choice model to provide the most accurate predictions of costs and benefits. We also derive bounds that can serve as a check on the theoretical consistency of such analyses and that offer insights into the magnitudes of potential errors resulting from imperfect multimarket integration.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Antonio M. Bento & Mark R. Jacobsen & Christopher R. Knittel & Arthur A. van Benthem, 2019. "Estimating the Costs and Benefits of Fuel-Economy Standards," NBER Chapters, in: Environmental and Energy Policy and the Economy, volume 1, pages 129-157, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:14288
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    References listed on IDEAS

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    Cited by:

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    2. Arik Levinson & Lutz Sager, 2023. "Who Values Future Energy Savings? Evidence from American Drivers," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(3), pages 717-751.
    3. Rik L. Rozendaal & Herman R. J. Vollebergh, 2021. "Policy-Induced Innovation in Clean Technologies: Evidence from the Car Market," CESifo Working Paper Series 9422, CESifo.
    4. Timothy Fitzgerald & Kevin Hassett & Cody Kallen & Casey B. Mulligan, 2020. "An Analysis of Vice President Biden's Economic Agenda: The Long Run Impacts of its Regulation, Taxes, and Spending," Working Papers 2020-157, Becker Friedman Institute for Research In Economics.
    5. Dumortier, Jerome, 2024. "Vehicle electrification and fuel economy policies: Impacts on agricultural land-use in the United States," Land Use Policy, Elsevier, vol. 141(C).

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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