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Air Pollution: CAFE Standards and Gas Taxes Mario Samano Department of Economics.

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Presentation on theme: "Air Pollution: CAFE Standards and Gas Taxes Mario Samano Department of Economics."— Presentation transcript:

1 Air Pollution: CAFE Standards and Gas Taxes Mario Samano Department of Economics

2 CAFE Standards or Gas Taxes? Corporate Average Fuel Economy (CAFE) is an aggregate of the fuel economy (in mpg) of each car manufacturer. EPA establishes a minimum level of fuel economy (the CAFE standard) to reduce gas consumption. New standard approved in 2007: from 27.5mpg to 35mpg by Obama administration changed compliance date to How costly is this change for consumers?

3 Data and Economic Model Data on car characteristics, CAFEs, gas prices, individual data on driving and demographics. Economic model estimates manufacturers parameters and individual preferences.

4 Consequences of Increasing the CAFE standard Technology improvements -> higher prices. Higher fuel economy -> more driving for some Taxes on gas affect both new and old car models -> incentives to drive less for everyone. Least fuel economy cars sales would decrease by 18%. Annual reduction of gas consumption of 0.6%. An increase in gas tax of $0.78 would give equivalent gas reductions.


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