Fuel Economy Standards, New Vehicle Sales, and Average Fuel Efficiency

The average fuel efficiency of new automobiles sold in the United States increased substantially from 1975 to 1981. This trend stagnated in 1981, however, and average fuel efficiency has actually fallen since 1987. Corporate Average Fuel Economy (CAFE) standards—the major policy tool in the United States directed at improving fuel efficiency—may have contributed to the stagnation and decline of average fuel efficiency by shifting automobile sales toward lower mileage vehicles. This paper illustrates how changes in vehicle sales act to dilute the intended effects of CAFE standards, and can actually lead to a decrease in average fuel efficiency.