Michael Greenstone, Sam Ori
Problem
Fuel efficiency standards aim to reduce vehicle emissions, but current standards are incomplete in several respects. Current standards regulate new vehicle fuel efficiency rather than total emissions, so they cannot ensure continued progress in reducing emissions. Even among new vehicles, gains in fuel efficiency have stalled in recent years as consumers increase their purchases of sport utility vehicles (SUVs) and pickup trucks. Current policy also focuses on fuel consumption per mile traveled rather than lifetime vehicle emissions, and lack of a well-functioning market for emissions permits reduces potential benefits from credit trading among vehicle manufacturers.
Proposal
The authors propose two major steps towards simplifying fuel efficiency standards and refocusing the program on achieving guaranteed emissions reductions at lower cost to automakers. These are: (1) target greenhouse gas (GHG) emissions directly, without differentiating by vehicle types and sizes, using data to project a given vehicle’s lifetime greenhouse gas emissions; and (2) establish a robust cap-and-trade market to reduce compliance costs for automakers while providing considerably more certainty about the future path of carbon dioxide (CO2) emissions.