Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives

This article discusses automobile fuel economy standards in the United States and other countries. We first describe how these programs affect the automobile market, including impacts on fuel consumption and other dimensions of the vehicle fleet. We then review two different methodologies for assessing the costs of fuel economy programs-engineering and market-based approaches-and discuss what the results of these assessments imply for policy. Next we compare the welfare effects of fuel economy standards and fuel taxes and discuss whether these two types of policies can be complementary. Finally, we review arguments for transitioning away from fuel economy regulations and toward a "feebate" system, a policy approach that imposes fees on vehicles that are fuel inefficient and provides rebates to those that are fuel efficient.