Designing Policies to Make Cars Greener

Posted: 11 Oct 2016

See all articles by Soren Anderson

Soren Anderson

Michigan State University - Department of Economics; Michigan State University - Department of Agricultural Economics; National Bureau of Economic Research

James Sallee

University of California, Berkeley - Department of Agricultural & Resource Economics

Date Written: October 2016

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.

Suggested Citation

Anderson, Soren T. and Sallee, James, Designing Policies to Make Cars Greener (October 2016). Annual Review of Resource Economics, Vol. 8, Issue 1, pp. 157-180, 2016. Available at SSRN: https://ssrn.com/abstract=2850925 or http://dx.doi.org/10.1146/annurev-resource-100815-095220

Soren T. Anderson (Contact Author)

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James Sallee

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

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