Klier - Article

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Abstract:

Many countries are tightening passenger vehicle fuel economy standards. The literature on
passenger vehicle standards has used structural models to estimate their welfare effects. This
paper provides the first empirical evidence on the effects of recently tightened fuel economy
standards on technology adoption. Specifically, it investigates changes in the rate and direction
of technology adoption, that is, the extent to which technology is used to increase fuel economy
at the expense of other vehicle attributes. We find that recent U.S. and European standards have
both increased the rate of technology adoption and affected the direction of technology adoption.
Producers reduced horsepower and torque compared to a counterfactual in which fuel economy
standards remained unchanged. We estimate opportunity costs from reduced horsepower and
torque to be of similar magnitude as the gains from fuel savings.