Fuel Prices, New Vehicle Fuel Economy, and Implications for Attribute-Based Standards

Resources for the Future Discussion Paper 16-04

48 Pages Posted: 28 Feb 2016

See all articles by Benjamin Leard

Benjamin Leard

Resources for the Future

Joshua Linn

Resources for the Future

Virginia McConnell

University of Maryland; Resources for the Future

Date Written: February 3, 2016

Abstract

Energy efficiency standards based on product attributes may interact with market conditions and affect the overall stringency of the standards. In this paper we analyze the interaction between gasoline prices and the redesigned and tightened federal fuel economy standards. Tighter standards will tend to reduce the effect of gasoline prices on market shares. Furthermore, under the standards a vehicle’s fuel economy requirement depends on its size. Lower gasoline prices incentivize consumers to purchase new vehicles with lower fuel economy, which are typically larger and therefore face lower fuel economy requirements. Using monthly data from 1996 to 2015, we find that fuel prices have had a smaller effect on market shares in recent years than previously. This result appears to be driven by a stronger response to rising than falling or stable prices. We construct two proxies for the stringency of the standards and we find limited evidence that the standards affect the relationship between fuel prices and market shares. Using the estimated responsiveness to fuel costs from the 2008 to 2015 period, the estimates imply that the 25 percent gasoline price decrease between 2014 and 2015 had a modest effect on average fuel economy and the average fuel economy required by the standards.

Keywords: passenger vehicles, fuel economy standards, gasoline prices

JEL Classification: L62, Q4, Q5

Suggested Citation

Leard, Benjamin and Linn, Joshua and McConnell, Virginia, Fuel Prices, New Vehicle Fuel Economy, and Implications for Attribute-Based Standards (February 3, 2016). Resources for the Future Discussion Paper 16-04. Available at SSRN: https://ssrn.com/abstract=2738754 or http://dx.doi.org/10.2139/ssrn.2738754

Benjamin Leard (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Joshua Linn

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Virginia McConnell

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

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