Are Fuel Economy Standards Regressive?

Lucas Davis and Christopher Knittel

No 22925, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Despite widespread agreement that a carbon tax would be more efficient, many countries use fuel economy standards to reduce transportation-related carbon dioxide emissions. We pair a simple model of the automakers' profit maximization problem with unusually-rich nationally representative data on vehicle registrations to estimate the distributional impact of U.S. fuel economy standards. The key insight from the model is that fuel economy standards impose a constraint on automakers which creates an implicit subsidy for fuel-efficient vehicles and an implicit tax for fuel-inefficient vehicles. Moreover, when these obligations are tradable, permit prices make it possible to quantify the exact magnitude of these implicit subsidies and taxes. We use the model to determine which U.S. vehicles are most subsidized and taxed, and we compare the pattern of ownership of these vehicles between high- and low-income census tracts. Finally, we compare these distributional impacts with existing estimates in the literature on the distributional impact of a carbon tax.

JEL-codes: H22 L5 L91 Q48 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-ene, nep-env, nep-pbe, nep-reg and nep-tre
Note: EEE IO PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published as Lucas W. Davis & Christopher R. Knittel, 2019. "Are Fuel Economy Standards Regressive?," Journal of the Association of Environmental and Resource Economists, vol 6(S1), pages S1-S27.
Published as Are Fuel Economy Standards Regressive? , Lucas W. Davis, Christopher R. Knittel. in Energy Policy Tradeoffs between Economic Efficiency and Distributional Equity , Deryugina, Fullerton, and Pizer. 2019

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