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Air Pollution: CAFE Standards and Gas Taxes

Air Pollution: CAFE Standards and Gas Taxes. Mario Samano Department of Economics. CAFE Standards or Gas Taxes? . Corporate Average Fuel Economy (CAFE) is an aggregate of the fuel economy (in mpg) of each car manufacturer.

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Air Pollution: CAFE Standards and Gas Taxes

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  1. Air Pollution: CAFE Standards and Gas Taxes Mario Samano Department of Economics

  2. CAFE Standards or Gas Taxes? • Corporate Average Fuel Economy (CAFE) is an aggregate of the fuel economy (in mpg) of each car manufacturer. • EPA establishes a minimum level of fuel economy (the CAFE standard) to reduce gas consumption. • New standard approved in 2007: from 27.5mpg to 35mpg by 2020. • Obama administration changed compliance date to 2016. • How costly is this change for consumers?

  3. Data and Economic Model • Data on car characteristics, CAFEs, gas prices, individual data on driving and demographics. • Economic model estimates manufacturers parameters and individual preferences.

  4. Consequences of Increasing the CAFE standard • Technology improvements -> higher prices. • Higher fuel economy -> more driving for some • Taxes on gas affect both new and old car models -> incentives to drive less for everyone. • Least fuel economy cars sales would decrease by 18%. • Annual reduction of gas consumption of 0.6%. • An increase in gas tax of $0.78 would give equivalent gas reductions.

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