As the Trump administration weighs how to revise fuel economy standards, a new study finds footprint-based rules are less effective and more costly than a flat standard with credit trading.At the heart of U.S. fuel economy standards currently being evaluated by the Trump administration is one attribute: a vehicle’s “footprint,” measured by the rectangle formed by the four points where a vehicle’s tires touch the ground. The attribute-based footprint standard is used to sort vehicles into bins with different compliance targets, with larger vehicles facing more modest requirements. Some have argued that this system incentivizes automakers to produce bigger vehicles, but there has been little concrete evidence to support this beyond a general trend toward light trucks and SUVs.
But a study in the May edition of The Review of Economics and Statistics evaluates attribute-based regulations, looking specifically at the weight-based standards in Japan. The study finds that the standards did indeed incentivize automakers to increase the weight of their vehicles. And while the weight-based standards are more efficient than a flat standard alone, they are twice as costly as a flat standard accompanied by credit trading.
“As automakers like Ford dramatically boost production of their pickups and SUVs, it’s clear that there is more driving their decisions than consumer preferences alone,” said co-author Koichiro Ito, an assistant professor at the Harris School of Public Policy. “Policy plays a substantial role, as our study indicates.”
Ito and his co-author James Sallee, an assistant professor at the University of California, Berkeley, studied Japan’s standards at a time when the government introduced an incentive for vehicles that exceeded their fuel economy target. This policy change—whereby vehicles were judged based on both weight, to be in compliance, and fuel economy, to receive the subsidy—allowed Ito and Sallee to examine how the targeted goal of the …