January 2, 2011

New Vehicle Characteristics and the Cost of the Corporate Average Fuel Economy Standard

by Thomas Klier and Joshua Linn

- By 2016, the Corporate Average Fuel Economy (CAFE) standard will increase by 40 percent from its current level, representing the first major increase in the standard since its creation in 1975. Previous analysis of the CAFE standard has focused on its short-run effects (1-2 years), in which vehicle characteristics are held fixed, or its long run effects (10 years or more), when firms can adopt new power train technology. This paper focuses on the medium run, when firms can choose characteristics such as weight and power, yet have only limited ability to modify current technology.

Klier, T. and J. Linn (2010). "New Vehicle Characteristics and the Cost of the Corporate Average Fuel Economy Standard." RFF Discussion Paper 10-50, Dec 2010.