Estimating the Costs and Benefits of Fuel-Economy Standards

Arthur van Benthem, Antonio Bento (abento@usc.edu), Mark Jacobsen and Christopher Knittel

No 14189, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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, impacting 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, multi-market vehicle choice model implies that the proposal would increase the size of the vehicle fleet over time, and also 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 multi-market 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 other insights into the magnitudes of potential errors resulting from imperfect multi-market integration.

Keywords: Vehicles; Fuel-economy standard; Benefit-cost analysis (search for similar items in EconPapers)
JEL-codes: H23 L51 Q38 Q48 Q58 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-ene and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Chapter: Estimating the Costs and Benefits of Fuel-Economy Standards (2019)
Working Paper: Estimating the Costs and Benefits of Fuel-Economy Standards (2019)
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