Abstract
Corporate average fuel economy (CAFE) regulations specify minimum standards for fuel efficiency that vehicle manufacturers must meet independently. We design a system of tradeable fuel economy credits that allows trading across vehicle classes and manufacturers with and without considering market power in the credit market. We perform numerical simulations to measure the potential cost savings from moving from the current CAFE system to one with stricter standards, but that allows vehicle manufacturers various levels of increased flexibility. We find that the ability for each manufacturer to average credits between its cars and trucks provides a large percentage of the potential savings. As expected, the greatest savings come from the greatest flexibility in the credit system. Market power lowers the potential cost savings to the industry as a whole, but only modestly. Loss in efficiency from market power does not eliminate the gains from credit trading.
| Original language | English |
|---|---|
| Pages (from-to) | 315-328 |
| Number of pages | 14 |
| Journal | Journal of Environmental Economics and Management |
| Volume | 58 |
| Issue number | 3 |
| DOIs | |
| State | Published - Nov 2009 |
Funding
This research was supported by a grant from the US Environmental Protection Agency's Science to Achieve Results (STAR) program. Although the research described in the article has been funded wholly or in part by the US Environmental Protection Agency's STAR program through Grant 830836010, it has not been subjected to any EPA review and therefore does not necessarily reflect the views of the Agency, and no official endorsement should be inferred. We would like to thank Gregory Gould for his assistance.
| Funders | Funder number |
|---|---|
| US Environmental Protection Agency's Science to Achieve Results | |
| U.S. Environmental Protection Agency | 830836010 |
| Star Scientific Foundation |
Keywords
- Cost-benefit
- Credits
- Energy conservation
- GHG
- Socioeconomic