Mathias Reynaert, 26 July 2020

In 2009, the EU adopted one of the world’s most demanding emission standards for its automobile market, requiring automakers to reduce emissions by 18%. This column discusses the different strategies firms can adopt to comply with these requirements and analyses their respective welfare effects. Using data from the Netherlands, it finds a growing divergence between on-road fuel consumption and laboratory results since the new policy, suggesting strategic ‘gaming’ by automakers. The political environment, the enforcement of the policy, and strategic decisions by firms are crucial to evaluating the welfare consequences of the emission standard. 

Mark Hoekstra, Jonathan Meer, Steve Puller, Jeremy West, 15 July 2015

A primary policy tool for reducing pollution from motor vehicles in the US is to directly regulate fuel efficiency. This column investigates whether drivers respond to increased fuel efficiency standards by driving more. The evidence from a stimulus programme shows that households did not increase their driving due to increased fuel efficiency regulations, but they purchased smaller, cheaper, and less powerful vehicles.

Laura Grigolon, Mathias Reynaert, Frank Verboven, 10 January 2015

Using a rich dataset for the European car markets, this column shows that consumers moderately undervalue future fuel costs. This investment inefficiency is too small to justify upfront car taxes to promote fuel efficient cars. A car tax results in a more fuel efficient vehicle fleet than a fuel tax, but fails to induce high-mileage consumers to substitute to more fuel efficient cars. Once we take this targeting effect into account, fuel taxes turn out to be more effective.

Mark Hoekstra, Steve Puller, Jeremy West, 03 September 2014

‘Cash for Clunkers’ was billed as a stimulus programme that would boost sales to the ailing US auto industry in 2009. This column shows that the design of the programme actually caused it to reduce revenues to the industry it was designed to help. The authors estimate that the entire increase in sales during the programme would have happened anyway in the following eight months. Moreover, since more fuel-efficient cars tend to be less expensive, the fuel economy requirement of the programme incentivised households to buy cheaper cars.


CEPR Policy Research