Fuel-economy targets

Fuel-Economy Debate Comes to a Head
by: Mike Spector
May 25, 2016
Click here to view the full article on WSJ.com

TOPICS: Environmental Regulation, Externalities

SUMMARY: U.S. regulators soon will kick off a review of future fuel-economy targets, intensifying a debate between auto executives and Washington over buyers' willingness to pay for emissions-cutting technology.

CLASSROOM APPLICATION: Students can evaluate the effect of low gasoline prices on the demand for fuel-efficient automobiles and ultimately the ability of auto manufacturers to meet fuel-economy targets. Instructors can also inform students about the economic efficiency of permitting auto manufacturers to trade fuel-economy credits.

QUESTIONS: 
1. (Introductory) What is the economic rationale for fuel-economy standards?

2. (Advanced) The article notes that regulations allow trucks to meet lower standards than cars, and let car makers falling short of targets buy credits from companies that beat them. Does the possible exchange of fuel-economy credits improve the economic efficiency of reducing carbon emissions?

3. (Advanced) How do the fuel-efficiency targets affect the prices that auto manufacturers set for fuel-efficient and gas-guzzling vehicles?

Reviewed By: James Dearden, Lehigh University

Questions:

1. Are fuel-economy standards an example of command-and-control regulation, corrective taxes, or cap and trade?

1. Is using fuel-economy targets the best way to reduce fuel consumption?