Automobile Fuel Economy Standards in a Lower-Oil-Price World

Overview

Corporate average fuel economy (CAFE) standards, which require automakers to achieve government-mandated targets for the efficiency of the vehicles they sell each year, can reduce U.S. reliance on oil, cut emissions of greenhouse gases that contribute to climate change, and save consumers money. However, the recent fall in oil prices could undercut the rationale for stringent standards because when gasoline is cheaper, consumers do not save as much on fuel costs when they buy more fuel-efficient vehicles. Ahead of a mandatory federal review of the policies, Varun Sivaram and Michael A. Levi modeled the costs and benefits of CAFE standards under lower oil prices than Barack Obama's administration assumed when, in 2011, it enacted rising standards through 2025. 

The authors find that the stringency of the standards, as currently planned, can maximize net benefits to society even under lower oil prices, assuming that U.S. government estimates of the costs of efficient technologies are correct. Moreover, Sivaram and Levi identify three benefits that federal agencies did not previously consider that make stringent CAFE standards attractive under low oil prices and find that climate change risks are more significant in justifying strong CAFE standards than they were in 2011.

Selected Figures From This Report