NCEE Seminar: Differential Regulation and Firm Responses - A Study of the CAFE Standard

Virtual Seminar
Washington, DC 20460
United States

Presenter:  Nafisa Lohawala

Ying Fan and Nafisa Lohawala

This paper analyzes the equilibrium effects of separating passenger cars and light-duty trucks in the US Corporate Average Fuel Economy standards. The favorable treatment of light trucks creates a perverse incentive for manufacturers to design large vehicles as light-duty trucks instead of passenger cars to achieve compliance. In doing so, vehicle manufacturers can increase the average fuel economy for both fleets since a redesigned vehicle that would have fallen short of the car standard may exceed the truck standard. To examine how manufacturers exploit the differential regulatory treatment of cars and trucks, we first exploit a historical change in the fleet classification of SUVs to document the extent to which manufacturers change vehicle characteristics to qualify for favorable regulatory treatment. Next, we develop and estimate a structural model of the US automobile industry using data between 2000-2016. Finally, to quantify the effect of car-truck differential treatment on product choice, we recompute an equilibrium with endogenous product choice under an alternative policy that harmonizes the car and truck standards.

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Contact: Ann Wolverton, 202-566-2278 (wolverton.ann@epa.gov)

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