Nations around the world have used fuel economy standards, voluntary or mandatory, to control greenhouse gas emissions and oil consumption. Although the literature on fuel economy standards is extensive, little attention has been paid to analyzing the efficiency and equity of alternative forms and levels of standards. A mathematical programming model is developed and applied to measuring the effects of alternative fuel economy regulations in terms of economic efficiency and differential impacts on manufacturers in the United States. Fuel economy improvements of 20% to 33% would appear to provide net economic benefits to U.S. consumers. Unfortunately, none of the alternatives tested is clearly more equitable than the others. The uniform percentage increase (UPI) and corporate average fuel economy (CAFE) metrics disadvantage different sets of manufacturers. An industrywide, voluntary fuel economy standard [such as that of the European Union or l'Association des Constructeurs Europeens d'Automobiles (European Car Manufacturers' Association)] has the potential to be most economically efficient and to avoid transfer payments among manufacturers as well. A weight-based metric would be more expensive than CAFE or UPI metrics for the same level of fuel economy increase but might be less likely to restrict manufacturers' future marketing options. The analysis has many limitations that should be addressed in future research.
Abstract