To Rebate or Not to Rebate: Fuel Economy Standards vs. Feebates
56 Pages Posted: 17 Nov 2016
Date Written: November 9, 2016
We compare the welfare effects in equilibrium of two environmental regulations that aim at increasing the new cars fleet’s average fuel efficiency: the fuel economy standards and the feebate policies. Maintaining the same environmental benefit and tax revenue, we simulate the implementation of each policy in France and the United States. Standard-type policies have larger negative welfare effects, up to 3.2 times those from the feebate. Effects on manufacturers are heterogeneous: some are better off under the standard regulation. The addition of a market to trade levels of fuel efficiency dominates the simple standard regulation but not always the feebate. We also consider the attribute-based standard, technological improvements, and the equivalence with fuel taxes as extensions.
Keywords: Environmental Regulation, Automobile Market, Structural Model, Policy Simulations
JEL Classification: C51, Q51, L50
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