Tradable fuel economy credits: Competition and oligopoly |
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Authors: | Jonathan Rubin Paul N Leiby David L Greene |
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Institution: | aMargaret Chase Smith Policy Center and School of Economics, University of Maine, 5715 Coburn Hall, Orono, ME 04469-5717, USA;bEnvironmental Sciences Division, Oak Ridge National Laboratory, P.O. Box 2008, Oak Ridge, TN 37831, USA;cNational Transportation Research Center, Oak Ridge National Laboratory, 2360 Cherahala Boulevard, Knoxville, TN 37932, USA |
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Abstract: | Corporate average fuel economy (CAFE) regulations specify minimum standards for fuel efficiency that vehicle manufacturers must meet independently. We design a system of tradeable fuel economy credits that allows trading across vehicle classes and manufacturers with and without considering market power in the credit market. We perform numerical simulations to measure the potential cost savings from moving from the current CAFE system to one with stricter standards, but that allows vehicle manufacturers various levels of increased flexibility. We find that the ability for each manufacturer to average credits between its cars and trucks provides a large percentage of the potential savings. As expected, the greatest savings come from the greatest flexibility in the credit system. Market power lowers the potential cost savings to the industry as a whole, but only modestly. Loss in efficiency from market power does not eliminate the gains from credit trading. |
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Keywords: | GHG Credits Cost– benefit Socioeconomic Energy conservation |
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