CAFE in the city — A spatial analysis of fuel economy standards

We identify and examine a new effect of fuel economy (CAFE) standards on welfare through a long-run spatial expansion of the urban form (“urban adjustment effect”) caused by lower per-mile driving costs and the distortion in the vehicle market due to CAFE standards. By integrating household-level ve...

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Bibliographic Details
Published in:Journal of environmental economics and management 2022-09, Vol.115, p.102711, Article 102711
Main Authors: Marz, Waldemar, Goetzke, Frank
Format: Article
Language:English
Subjects:
Fuel economy standards
Fuel tax
Monocentric city
Welfare cost
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Summary:We identify and examine a new effect of fuel economy (CAFE) standards on welfare through a long-run spatial expansion of the urban form (“urban adjustment effect”) caused by lower per-mile driving costs and the distortion in the vehicle market due to CAFE standards. By integrating household-level vehicle choice and the automobile market into a calibrated monocentric city model, we find that, for a carbon emission decrease of 80 percent, the long-run urban adjustment effect adds a relevant monthly welfare cost of up to 20 Dollars to the medium-run welfare cost of CAFE compliance of 128 Dollars per month (+15 percent). This welfare cost can be alleviated by about one third through the combination of CAFE with urban growth boundaries. For fuel taxes, on the other hand, the urban adjustment effect causes a welfare gain of a similar magnitude.
ISSN:0095-0696
1096-0449
DOI:10.1016/j.jeem.2022.102711