Designing Policies to Make Cars Greener

Soren T. Anderson; James M. Sallee

doi:10.1146/annurev-resource-100815-095220

Annual Review of Resource Economics

Volume 8, 2016

Review Article

Free

Designing Policies to Make Cars Greener

Soren T. Anderson¹, and James M. Sallee²
View Affiliations Hide Affiliations

Affiliations: ¹Department of Economics, Michigan State University, East Lansing, Michigan 48824; email: [email protected] ²Department of Agricultural and Resource Economics, University of California, Berkeley, California 94720; email: [email protected]
Vol. 8:157-180 (Volume publication date October 2016) https://doi.org/10.1146/annurev-resource-100815-095220
© Annual Reviews

Abstract

We review what is known about the economic efficiency of fuel taxes relative to efficiency standards aimed at mitigating environmental externalities from cars. We present a simplified model of car choice that allows us to emphasize the relationships between fuel economy, other car attributes, and miles traveled. We focus on greenhouse gas emissions, although we note how other environmental externalities affect our conclusions. Our main conclusion—that standards are substantially less efficient than a fuel tax—is already familiar. Less familiar are points we make about the relative importance of the rebound effect, on the effects of attribute-based policies, and the implications of behavioral biases. We point to areas where we believe future research can have the greatest contribution, including work on uncertainty, heterogeneity, and empirical studies in low- and middle-income countries.

Keyword(s): automobiles, fuel taxation, fuel-economy regulation, greenhouse gas emissions

Article metrics loading...

/content/journals/10.1146/annurev-resource-100815-095220

2016-10-05

2024-04-20

Full text loading...

/deliver/fulltext/resource/8/1/annurev-resource-100815-095220.html?itemId=/content/journals/10.1146/annurev-resource-100815-095220&mimeType=html&fmt=ahah

Literature Cited

Allcott H. 2013. The welfare effects of misperceived product costs: data and calibrations from the automobile market. Am. Econ. J. Econ. Policy 5:30–66 [Google Scholar]
Allcott H, Mullainathan S, Taubinsky D. 2014. Energy policy with externalities and internalities. J. Public Econ. 112:72–88 [Google Scholar]
Allcott H, Sunstein CR. 2015. Regulating internalities. J. Policy Anal. Manag. 34:698–705 [Google Scholar]
Allcott H, Wozny N. 2014. Gasoline prices, fuel economy, and the energy paradox. Rev. Econ. Stat. 96:779–95 [Google Scholar]
Anderson M, Auffhammer M. 2014. Pounds that kill: the external costs of vehicle weight. Rev. Econ. Stud. 82:535–71 [Google Scholar]
Anderson S, Fischer C, Egorenkov A. 2016. Overlapping strategies for reducing carbon emissions from the personal transportation sector Work. Pap., Mich. State Univ., East Lansing, MI
Anderson ST. 2012. The demand for ethanol as a gasoline substitute. J. Environ. Econ. Manag. 63:151–68 [Google Scholar]
Anderson ST, Kellogg R, Sallee JM. 2013. What do consumers believe about future gasoline prices?. J. Environ. Econ. Manag. 66:383–403 [Google Scholar]
Anderson ST, Parry IWH, Sallee JM, Fischer C. 2011. Automobile fuel economy standards: impacts, efficiency and alternatives. Rev. Environ. Econ. Policy 5:89–108 [Google Scholar]
Anderson ST, Sallee JM. 2011. Using loopholes to reveal the marginal cost of regulation: the case of fuel-economy standards. Am. Econ. Rev. 101:1375–409 [Google Scholar]
Austin D, Dinan T. 2005. Clearing the air: the costs and consequences of higher CAFE standards and increased gasoline taxes. J. Environ. Econ. Manag. 50:562–82 [Google Scholar]
Bento AM, Li S, Roth K. 2012. Is there an energy paradox in fuel economy? A note on the role of consumer heterogeneity and sorting bias. Econ. Lett. 115:44–48 [Google Scholar]
Beresteanu A, Li S. 2011. Gasoline prices, government support, and the demand for hybrid vehicles in the United States. Int. Econ. Rev. 52:161–82 [Google Scholar]
Borenstein S. 2015. A microeconomic framework for evaluating energy efficiency rebound and some implications. Energy J. 36:1–21 [Google Scholar]
Busse MR, Knittel CR, Zettelmeyer F. 2013. Are consumers myopic? Evidence from new and used car purchases. Am. Econ. Rev. 103:220–56 [Google Scholar]
Chan N, Gillingham K. 2015. The microeconomic theory of the rebound effect and its welfare implications. J. Assoc. Environ. Resour. Econ. 2:133–59 [Google Scholar]
Coglianese J, Davis LW, Kilian L, Stock JH. 2015. Anticipation, tax avoidance, and the price elasticity of gasoline demand NBER Work. Pap. 20980
Dahl C, Sterner T. 1991. Analyzing gasoline demand elasticities: a survey. Energy Econ. 13:203–10 [Google Scholar]
Davis LW. 2014. The cost of global fuel subsidies. Milken Inst. Rev. Third Quart.:48–57
Davis LW, Metcalf GE. 2016. Does better information lead to better choices? Evidence from energy-efficiency labels. J. Assoc. Environ. Resour. Econ. 3589–625
EIA (US Energy Inf. Adm.) 2015. Vehicle standards around the world aim to improve fuel economy and reduce emissions. Today In Energy Blog Oct. 15. http://www.eia.gov/todayinenergy/detail.cfm?id=23572
EPA (US Environ. Prot. Agency) 2010. Final rulemaking to establish light-duty vehicle greenhouse gas emission standards and corporate average fuel economy standards: regulatory impact analysis Rep. EPA-420-R-10-009, US Environ. Prot. Agency, Washington, DC
Espey M. 1998. Gasoline demand revisited: an international meta-analysis of elasticities. Energy Econ. 20:273–95 [Google Scholar]
Fischer C. 2005. On the importance of the supply side in demand-side management. Energy Econ. 27:165–80 [Google Scholar]
Fullerton D, West SE. 2002. Can taxes on cars and gasoline mimic an unavailable tax on emissions?. J. Environ. Econ. Manag. 42:135–57 [Google Scholar]
Fullerton D, West SE. 2010. Tax and subsidy combinations for the control of car pollution. B.E. J. Econ. Anal. Policy 10:1–33 [Google Scholar]
Gillingham K. 2013. The economics of fuel economy standards versus feebates Work. Pap., Natl. Energy Policy Inst., Tulsa, OK
Gillingham K. 2014a. Identifying the elasticity of driving: evidence from a gasoline price shock in California. Reg. Sci. Urban Econ. 47:13–24 [Google Scholar]
Gillingham K. 2014b. Rebound effects. The New Palgrave Dictionary of Economics SN Durlauf, LE Blume Basingstoke, UK: Palgrave Macmillan. Online, ed.. [Google Scholar]
Gillingham K, Jenn A, Azevedo IML. 2015. Heterogeneity in the response to gasoline prices: evidence from Pennsylvania and implications for the rebound effect. Energy Econ. 52:Suppl. 1S41–52 [Google Scholar]
Gillingham K, Rapson D, Wagner G. 2016. The rebound effect and energy efficiency policy. Rev. Environ. Econ. Policy 10:168–88 [Google Scholar]
Goodwin P. 1992. A review of new demand elasticities with special reference to short and long run effects of price changes. J. Transp. Econ. Policy 26:155–69 [Google Scholar]
Goodwin P, Dargay J, Hanly M. 2004. Elasticities of road traffic and fuel consumption with respect to price and income: a review. Transp. Rev. 24:275–92 [Google Scholar]
Goulder LH, Jacobsen MR, van Benthem AA. 2012. Unintended consequences from nested state and federal regulations: the case of Pavley greenhouse-gas-per-mile limits. J. Environ. Econ. Manag. 63:187–207 [Google Scholar]
Graham DJ, Glaister S. 2002. The demand for automobile fuel: a survey of elasticities. J. Transp. Econ. Policy 36:1–26 [Google Scholar]
Greene DL. 2010. How consumers value fuel economy: a literature review Rep. EPA-420-R-10-008, Environ. Prot. Agency, Washington, DC
Greening LA, Greene DL, Difiglio C. 2000. Energy efficiency and consumption—the rebound effect—a survey. Energy Policy 28:389–401 [Google Scholar]
Grigolon L, Reynaert M, Verboven F. 2014. Consumer valuation of fuel costs and the effectiveness of tax policy: evidence from the European car market Work. Pap., Kathol. Univ. Leuven, Leuven, Belg.
Gruenspecht HK. 1982. Differentiated regulation: the case of auto emissions standards. Am. Econ. Rev. 72:328–31 [Google Scholar]
Helfand G, Wolverton A. 2011. Evaluating the consumer response to fuel economy: a review of the literature. Int. Rev. Environ. Resour. Econ. 5:103–46 [Google Scholar]
Henderson DR. 1985. The economics of fuel economy standards. Regulation 9:45–48 [Google Scholar]
Heutel G. 2015. Optimal policy instruments for externality-producing durable goods under present bias. J. Environ. Econ. Manag. 72:54–70 [Google Scholar]
Holland SP, Hughes JE, Knittel CR. 2009. Greenhouse gas reductions under low carbon fuel standards?. Am. Econ. J. Econ. Policy 1:106–46 [Google Scholar]
Houde S. 2014. Bunching with the stars: how firms respond to environmental certification Work. Pap., Univ. Md., College Park, MD
Houde S, Spurlock CA. 2015. Do energy efficiency standards improve quality? Evidence from a revealed preference approach Work. Pap., Univ. Md., College Park, MD
ICCT (Int. Counc. Clean Transp.) 2013. From laboratory to road: a comparison of official and “real-world” fuel consumption and CO2 values for cars in Europe and the United States White Pap., Int. Counc. Clean Transp., San Francisco
ICCT (Int. Counc. Clean Transp.) 2015. From laboratory to road: a 2015 update of official and “real-world” fuel consumption and CO2 values for passenger cars in Europe White Pap., Int. Counc. Clean Transp., San Francisco
Ito K, Sallee JM. 2015. The economics of attribute-based regulation: theory and evidence from fuel-economy standards Work. Pap., Univ. Chicago, Chicago
Jacobsen MR. 2013a. Evaluating U.S. fuel economy standards in a model with producer and household heterogeneity. Am. Econ. J. Econ. Policy 5:148–87 [Google Scholar]
Jacobsen MR. 2013b. Fuel economy and safety: the influences of vehicle class and driver behavior. Am. Econ. J. Appl. Econ. 5:31–26 [Google Scholar]
Jacobsen MR, Knittel CR, Sallee JM, van Benthem AA. 2016. Sufficient statistics for imperfect externality-correcting policiesNBER Work. Pap. 22063
Jacobsen MR, van Benthem AA. 2015. Vehicle scrappage and gasoline policy. Am. Econ. Rev. 105:1312–38 [Google Scholar]
Kahn JA. 1986. Gasoline prices and the used automobile market: a rational expectations asset price approach. Q. J. Econ. 101:323–39 [Google Scholar]
Kellogg R. 2016. Gasoline price uncertainty and the design of fuel economy standards Work. Pap., Univ. Chicago, Chicago
Kilian L. 2010. Explaining fluctuations in gasoline prices: a joint model of the global crude oil market and the U.S. retail gasoline market. Energy J. 31:87–112 [Google Scholar]
Knittel CR, Meiselman BS, Stock JH. 2015. The pass-through of RIN prices to wholesale and retail fuels under the renewable fuel standard NBER Work. Pap. 21343
Langer A, McRae S. 2015. Step on it: approaches to improving existing vehicles' fuel economy Work. Pap., Univ. Ariz., Tucson, AZ
Leard B, McConnell V. 2015. New markets for pollution and energy efficiency: credit trading under automobile greenhouse gas and fuel economy standards Disc. Pap. 15-16, Resour. Fut., Washington, DC
Levin L, Lewis M, Wolak F. 2015. High frequency evidence on the demand for gasoline Work. Pap., Clemson Univ., Clemson, SC
Li S, Timmins C, von Haefen RH. 2009. How do gasoline prices affect fleet fuel economy?. Am. Econ. J. Econ. Policy 1:113–37 [Google Scholar]
Newell RG, Siikamäki J. 2014. Nudging energy efficiency behavior: the role of information labels. J. Assoc. Environ. Resour. Econ. 1:555–98 [Google Scholar]
NRC (Natl. Res. Counc.) 2002. Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards Washington, DC: Natl. Acad. Press [Google Scholar]
Parry IWH, Evans D, Oates WE. 2014a. Are energy efficiency standards justified?. J. Environ. Econ. Manag. 67:104–25 [Google Scholar]
Parry IWH, Small KA. 2005. Does Britain or the United States have the right gasoline tax?. Am. Econ. Rev. 95:1276–89 [Google Scholar]
Parry IWH, Veung C, Heine D. 2014b. How much carbon pricing is in countries' own interests? The critical role of co-benefits Work. Pap. WP/14/174, Int. Monet. Fund, Washington, DC
Parry IWH, Walls M, Harrington W. 2007. Automobile externalities and policies. J. Econ. Lit. 45:373–99 [Google Scholar]
Plourde C, Bardis V. 1999. Fuel economy standards in a model of automobile quality. Energy Econ. 21:309–19 [Google Scholar]
Pouliot S, Babcock BA. 2014a. Impact of ethanol mandates on fuel prices when ethanol and gasoline are imperfect substitutes Work. Pap. 14-WP 551, Cent. Agric. Rural Dev., Iowa State Univ., Ames, IA
Pouliot S, Babcock BA. 2014b. The demand for E85: geographical location and retail capacity constraints. Energy Econ. 45:134–43 [Google Scholar]
Proost S, Van Dender K. 2011. What long-term road transport future? Trends and policy options. Rev. Environ. Econ. Policy 5:44–65 [Google Scholar]
Reynaert M. 2015. Abatement strategies and the cost of environmental regulation: emission standards on the European car market Work. Pap., Kathol. Univ. Leuven, Leuven, Belg.
Reynaert M, Sallee JM. 2016. Self regulation, corrective policy and Goodhart's Law: the case of carbon emissions from automobiles Work. Pap., Univ. Calif., Berkeley, CA
Sallee JM. 2011. The taxation of fuel economy. Tax Policy Econ. 25:1–37 [Google Scholar]
Sallee JM, Slemrod J. 2012. Car notches: strategic automaker responses to fuel economy policy. J. Public Econ. 96:981–99 [Google Scholar]
Sallee JM, West SE, Fan W. 2016. Do consumers recognize the value of fuel economy? Evidence from used car prices and gasoline price fluctuations. J. Public Econ. 135:61–73 [Google Scholar]
Salvo A, Huse C. 2013. Build it, but will they come? Evidence from consumer choice between gasoline and sugarcane ethanol. J. Environ. Econ. Manag. 66:251–79 [Google Scholar]
Shriver SK. 2015. Network effects in alternative fuel adoption: empirical analysis of the market for ethanol. Mark. Sci. 34:78–97 [Google Scholar]
Small KA, Van Dender K. 2007. Fuel efficiency and motor vehicle travel: the declining rebound effect. Energy J. 28:25–51 [Google Scholar]
Spence MA. 1975. Monopoly, quality, and regulation. Bell J. Econ. 6:417–29 [Google Scholar]
Weitzman ML. 1974. Prices versus quantities. Rev. Econ. Stud. 41:477–91 [Google Scholar]
West J, Hoekstra M, Meer J, Puller SL. 2015. Vehicle miles (not) traveled: why fuel economy requirements don't increase household driving NBER Work. Pap. 21194 [Google Scholar]
Whitefoot K, Fowlie M, Skerlos S. 2013. Evaluating U.S. reformed corporate average fuel economy standards using an engineering attribute selection model. Work. Pap., Univ. Calif., Berkeley, CA
Whitefoot K, Skerlos S. 2012. Design incentives to increase vehicle size created from the U.S. footprint-based fuel economy standards. Energy Policy 41:402–11 [Google Scholar]