The Effect of Standards and Fuel Prices on Automobile Fuel Economy: An International Analysis

48 Pages Posted: 25 Jul 2006 Last revised: 5 Aug 2008

See all articles by Sofronis Clerides

Sofronis Clerides

University of Cyprus; Centre for Economic Policy Research (CEPR); University of Bologna - Rimini Center for Economic Analysis (RCEA)

Theodoros Zachariadis

Cyprus University of Technology; The Cyprus Institute

Date Written: June 2008

Abstract

There is an intense debate over whether fuel economy standards or fuel taxation is the more efficient policy instrument to raise fuel economy and reduce CO2 emissions of cars. The aim of this paper is to analyze the impact of standards and fuel prices on new car fuel economy with the aid of cross-section time series analysis of data from 18 countries. We employ a dynamic specification of new car fuel consumption as a function of fuel prices, standards and per capita income. It turns out that standards have induced considerable fuel savings throughout the world, although their welfare impact is not examined here. If standards are not further tightened then retail fuel prices would have to remain at high levels for more than a decade in order to attain similar fuel savings. Finally, without higher fuel prices or tighter standards, one should not expect any marked improvements in fuel economy under 'business as usual' conditions.

Keywords: CAFE, fuel tax, greenhouse gases, rebound effect, regulation

JEL Classification: Q4, Q5

Suggested Citation

Clerides, Sofronis and Zachariadis, Theodoros, The Effect of Standards and Fuel Prices on Automobile Fuel Economy: An International Analysis (June 2008). Energy Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=918442 or http://dx.doi.org/10.2139/ssrn.918442

Sofronis Clerides

University of Cyprus ( email )

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HOME PAGE: http://sofronis.clerides.com

Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

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Rimini (RN), RN 47900
Italy

Theodoros Zachariadis (Contact Author)

Cyprus University of Technology ( email )

Dept. of Environmental Science & Technology
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HOME PAGE: http://www.cut.ac.cy/staff/t.zachariadis?languageId=1

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