Designing Policies to Make Cars Greener: A Review of the Literature
We review what is known about the economic efficiency of fuel taxes relative to efficiency standards aimed at mitigating environmental externalities from automobiles. We present a simplified model of car choice that allows us to emphasize the relationships between fuel economy, other car attributes, and miles traveled. We focus on greenhouse gas emissions, although we note how other environmental externalities affect our conclusions. Our main conclusion—that standards are substantially less efficient than a fuel tax—is already familiar. Less familiar are points we make about the relative importance of the rebound effect, on the effects of attribute-based policies, and the implications of behavioral biases. We point to areas where we believe future research can have the greatest contribution, including work on uncertainty, heterogeneity, and empirical work in low and middle-income countries.
We thank Hunt Allcott for helpful suggestions and Jonathan Siegle for valuable research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Soren T. Anderson & James M. Sallee, 2016. "Designing Policies to Make Cars Greener," Annual Review of Resource Economics, vol 8(1).