Fuel Economy 2.0

36 Pages Posted: 4 Apr 2017 Last revised: 2 Feb 2019

See all articles by Michael Greenstone

Michael Greenstone

University of Chicago - Department of Economics; Becker Friedman Institute for Economics; National Bureau of Economic Research (NBER)

Cass R. Sunstein

Harvard Law School; Harvard University - Harvard Kennedy School (HKS)

Sam Ori

University of Chicago - Energy Policy Institute

Date Written: February 2019

Abstract

Motor vehicle fuel-economy standards have long been a cornerstone of U.S. policy to reduce fuel consumption in the light-duty vehicle fleet. In 2011 and 2012 these standards were significantly expanded in an effort to achieve steep reductions in oil demand and greenhouse gas emissions through 2025. In 2018, following a review of the standards, the Environmental Protection Agency and National Highway Traffic Safety Administration proposed to instead freeze the standards at 2020 levels, citing high program costs (and potential safety issues).

The current debate over the future of U.S. efficiency standards provides an opportunity to consider whether the existing approach could be improved to achieve environmental goals at a lower cost. The current policy prescribes standards that focus on efficiency alone, as opposed to lifetime consumption, and treats vehicle categories differentially, meaning that it imposes unnecessarily high costs and does not deliver guaranteed petroleum/greenhouse gas (GHG) savings. On the basis of a commitment to cost-benefit analysis, defining U.S. regulatory policy for more than 30 years, we propose a novel reform that has three main features: 1) the regulation of expected fuel consumption/GHG emissions directly without consideration of the type or size of the vehicle; 2) use of existing data to assign lifetime fuel consumption/GHG emissions to each model; and 3) creation of a robust cap-and-trade market for automakers to reduce compliance costs. We show that this approach would increase the certainty of reductions in fuel consumption/GHG emissions in transportation and do so at a far lower cost per gallon/ton of GHG avoided. Such an approach would be consistent with existing statutory authorities at the Environmental Protection Agency and the Department of Transportation.

Suggested Citation

Greenstone, Michael and Sunstein, Cass R. and Ori, Sam, Fuel Economy 2.0 (February 2019). Harvard Public Law Working Paper No. 17-27. Available at SSRN: https://ssrn.com/abstract=2943551 or http://dx.doi.org/10.2139/ssrn.2943551

Michael Greenstone

University of Chicago - Department of Economics

1126 East 59th Street
Chicago, IL 60637
United States

Becker Friedman Institute for Economics ( email )

Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Cass R. Sunstein (Contact Author)

Harvard Law School ( email )

1575 Massachusetts Ave
Areeda Hall 225
Cambridge, MA 02138
United States
617-496-2291 (Phone)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Sam Ori

University of Chicago - Energy Policy Institute ( email )

Saieh Hall for Economics
5757 S. University Avenue
Chicago, IL 60637
United States

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