Ken Small, University of California-Irvine

Despite decades of empirical assessment, economists have not reached consensus on key impacts of Corporate Average Fuel Economy (CAFE) standards, including how much they reduce fuel consumption.  Evaluating CAFE is complicated by factors such as consumers’ expectations of future fuel prices, their valuation of and responsiveness to changes in fuel economy, automakers’ optimal technological and strategic behavior, changes in used-vehicle markets, and the path of energy prices. I investigate the effects of many of those factors in a quantitative assessment of CAFE. I do so by modifying the U.S. Department of Energy’s National Energy Modeling System and using it to simulate variations from a set of reference assumptions. Results are especially sensitive to consumers’ valuation of expected fuel cost savings and to the future course of oil prices.