Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards

Thomas Klier and Joshua Linn

RFF Working Paper Series from Resources for the Future

Abstract: Many countries are tightening passenger vehicle fuel economy standards. The literature on passenger vehicle standards has used structural models to estimate their welfare effects. This paper provides the first empirical evidence on the effects of recently tightened fuel economy standards on technology adoption. Specifically, it investigates changes in the rate and direction of technology adoption, that is, the extent to which technology is used to increase fuel economy at the expense of other vehicle attributes. We find that recent US and European standards have both increased the rate of technology adoption and affected the direction of technology adoption. Producers reduced horsepower and torque compared to a counterfactual in which fuel economy standards remained unchanged. We estimate opportunity costs from reduced horsepower and torque to be of similar magnitude as the gains from fuel savings.

Keywords: passenger vehicles; US greenhouse gas emissions rate standards; European carbon dioxide emissions rate standards; technology adoption (search for similar items in EconPapers)
JEL-codes: L62 Q4 Q5 (search for similar items in EconPapers)
Date: 2014-10-28
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Related works:
Working Paper: Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards (2013)
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