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Impacts of Long-Range Increases in the Fuel Economy (CAFE) Standard


  • Andrew N. Kleit

    1. Kleit: Professor of Energy and Environmental Economics, The Pennsylvania State University, 507 Walker Building, The Pennsylvania State University, University Park, PA 16802–5010. Phone 1–814–865–0711, Fax 1–814–865–3663, E-mail
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      This report was funded by the General Motors Corporation. The views expressed herein are solely those of the author and not those of General Motors or of Pennsylvania State University. I thank General Motors economists Marc Robinson, Tom Walton, and Mike Whinihan and two anonymous referees for helpful comments and data, and graduate students Supawat Rangsuriyawiboon and Tina Zhang for excellent research assistance.


This work models the impact of higher CAFE standards on producer and consumer welfare, gasoline consumption, externalities from increased driving, and the emissions of traditional pollutants. In particular, a long-run 3.0 MPG increase in the CAFE standard is estimated to impose welfare losses of about $4 billion per year and save about 5.2 billion gallons of gasoline per year, for a hidden tax of $0.78 per gallon conserved. An 11-cent-per-gallon increase in the gasoline tax would save the same amount of fuel at a welfare cost of about $290 million per year, or about one-fourteenth the cost. (JEL L51, Q30)