The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel Economy Standards

The Review of Economics and Statistics, Volume 100 , No. 2

Summary:

• Fuel economy standards can be effective in reducing oil consumption and greenhouse gas emissions to achieve energy security, climate and pollution goals.
• As countries, including the United States, reevaluate fuel economy standards, they should reconsider the unintended consequence of a size-based approach such as footprint- or weight-based standards.
• The authors study weight-based fuel economy standards in Japan, which offer a unique platform to evaluate real life changes because they have existed for more than three decades and seen several policy reforms.
• The weight-based standard incentivizes automakers to increase vehicle weight as a means to achieve compliance without significantly improving fuel economy.
• A flat standard that allows for compliance trading, by which those who achieve the standard can sell credits to those who do not, is the most effective policy design. This more efficient policy would achieve the fuel economy target for less than half the cost of size-based regulations.