Antonio Bento and Yiwei Wang

Cornell University

Abstract

Light duty vehicles, including passenger cars and light duty trucks, is one of the major sources of the energy consumption and emission in the US. The Corporate Average Fuel Economy (CAFE) was enacted by Congress in 1975 to reduce energy consumption by increasing the fuel economy of cars and light trucks. However, during the period when CAFE standards remained stable, most technology improvement turned into power and weight. Vehicles became bigger and more powerful instead of more fuel efficient. After remaining stable for 2 decades, the CAFE standards are again tightened and will be raised to 46-61 mpg for cars and 30-50 mpg for light trucks in 2025. Previous studies showed that given the current technology growth rate in the automobile industry, such tight standards can be met only if automakers downsize their products to what they made in the 1990s. Using the vehicle attribute data from Ward’s Automotive Yearbook and automobile-catalog.com, we find that the standards might not be as tight as previous studies have predicted. US automakers, bound by the CAFE standards, has higher than normal growth rate in their production possibility frontier (PPF) when CAFE standard was tightened during 1978-1990. We did not observe such significant effect on Asian automakers, whom were not bounded, and European automakers, who choose to pay the fines. With the sharp increase in the standards starting in the 2010s, Asian automakers will also be bound by the standards and we predict that both US and Asian automakers could not only downsize their product to meet the standard but could also push their PPF faster comparing to the years when the standards were stable. Such improvement in technology growth, pushed by an increase standard, can help automakers meet the fuel efficiency standards without having to sacrifice as much other attribute as previously predicted.