EPRINC has just published CAFE, Gasoline Prices and the Law of Diminishing Returns: A New Agenda for the Midterm Evaluation. The paper was authored by EPRINC’s Lucian Pugliaresi and Max Pyziur.
The paper discusses the Corporate Average Fuel Economy (CAFE) Standards program, one of the more important programs in the regulation of transportation fuels. These standards were enacted in 1975 in order to increase fuel efficiency in newly manufactured vehicles, thereby limiting fuel consumption. This mandate requires manufacturers and marketers to assemble vehicles with increasing fuel efficiency performance.
An emerging concern regarding higher CAFE standards is the diminishing returns from higher MPG requirements. The U.S. Energy Information Administration (EIA) has shown that modest improvements in fuel economy in less efficient vehicles produce incrementally greater value than large improvements in more efficient vehicles.
Given the current low-price scenario for transportation fuels that is expected to continue for some time, it is important to assess the cost-effectiveness of the CAFE program relative to this new environment for transportation fuels.
The paper can be found at the following link: