Abstract: New Corporate Average Fuel Economy (CAFE) standards were recently passed in the United States with the twin goals of reducing greenhouse gas emissions and oil use. The new standards represent a dramatic change from recent policy. This paper examines the key features of the new rules, and compares them to previous CAFE standards in terms of flexibility and structure. The importance of consumer preferences and market forces on CAFE outcomes are identified. In the second part of the paper, the perspective of the consumer is explored. Consumer assessments of fuel economy savings with more fuel-efficient vehicles may be biased or incomplete, leading many to argue that there is an “energy efficiency gap” in consumer demand for vehicles. Reasons for such a gap, such as market failures, behavioral responses, and market barriers, are summarized. The implications for policy are discussed, including the role of combining CAFE with other policies.

Abstract: Using individual travel diary data collected before and after the rail transit coverage expansion in urban Beijing, this paper estimates the impact of rail accessibility improvement on the usage of rail transit, automobiles, buses, walking, and bicycling, measured as percent distance traveled by each mode in an individual trip. My results indicate that the average rail transit usage significantly increased, by 98.3% for commuters residing in the zones where the distances to the nearest station decreased because of the expansion, relative to commuters in the zones where the distances did not change. I also find that auto usage significantly decreased, by 19.8%, while the impact on bus usage was small and not statistically significant. Average walking and bicycling distance (combined) increased by 11.8%, indicating that walking and bicycling are complements to urban rail transit, instead of substitutes. Furthermore, I find that estimated changes in auto usage and rail transit usage vary significantly with auto ownership and income.

Abstract: This paper presents an overview of the economics literature on the effect of Corporate Average Fuel Economy (CAFE) standards on the new vehicle market. Since 1978, CAFE has imposed fuel economy standards for cars and light trucks sold in the U.S. market. This paper reviews the history of the standards, followed by a discussion of the major upcoming changes in implementation and stringency. It describes strategies that firms can use to meet the standards and reviews the CAFE literature as it applies to the new vehicle market. The paper concludes by highlighting areas for future research in light of the upcoming changes to CAFE.

Abstract: By 2016, the Corporate Average Fuel Economy (CAFE) standard will increase by 40 percent from its current level, representing the first major increase in the standard since its creation in 1975. Previous analysis of the CAFE standard has focused on its short-run effects (1–2 years), in which vehicle characteristics are held fixed, or its long run effects (10 years or more), when firms can adopt new power train technology. This paper focuses on the medium run, when firms can choose characteristics such as weight and power, yet have only limited ability to modify current technology. We first document the historical importance of the medium run and then estimate consumers’ willingness to pay for vehicle characteristics. We employ a novel empirical strategy that accounts for the vehicle characteristics’ endogeneity by using variation in the set of engine models used in vehicle models. The results imply that consumers value an increase in power more than a proportional increase in fuel economy. Simulations of the medium-run effects of an increase in the CAFE standard suggest that regulatory costs are significantly smaller in the medium run than in the short run.

Abstract: Increasing energy security and lowering greenhouse gas (GHG) emissions have been prominent goals in recent energy and environmental policies. While these goals are often complementary, there may also be cases where they conflict. A case in point is the Energy Independence and Security Act of 2007 (EISA). The goals of EISA are to increase the United States’ energy independence and security as well as to increase the nation’s production of clean renewable fuels. Title I of EISA establishes new fuel economy requirements for American cars and trucks that can be expected to reduce both the nation’s future oil consumption and GHG emissions. Title II of EISA establishes mandates for the use of increasing quantities of low carbon fuels. While the Title II mandates will meet the energy security goal of EISA, the mandate for the use of at least 16 billion gallons of cellulosic ethanol by 2022 may conflict with efforts to substantially reduce the nation’s GHG emissions over the next 20 years. The nation’s production capacity for biomass may be limited by a variety of factors, such as land availability. The biofuels mandate in EISA will likely require shifting biomass from its potential use as a low cost, low GHG emissions energy source for the production of electric power. Thus, there is a trade-off between the energy security gains of the biofuels mandate under EISA and the more effective (in terms of GHG emissions reductions) use of biomass in the electric utility sector. One means of evaluating this trade-off is to examine the factors that affect “cost-effectiveness” in terms of energy security of diverting biomass from electricity production to cellulosic ethanol production. This paper identifies some of the key factors that affect the cost-effectiveness of the energy security and climate change goals of EISA. The cost-effectiveness of the EISA energy security goal will depend on (1) constraints on biomass production, that is, the extent to which the EISA mandate may crowd out the use of biomass to generate electricity; (2) the world oil price; and (3) the social cost of carbon.