Details

Contact: Carl Pasurka, 202-566-2275

Presenter: Benjamin Leard (Resources for the Future)

Joshua Linn (Resources for the Future)

Christy Zhou (Resources for the Future and College of Business, Clemson University)

Presenting – Joshua Linn

Description: An energy efficiency gap for passenger vehicle fuel economy exists if fuel-saving technologies are not adopted even if the value of fuel savings exceeds the cost of adoption. The energy efficiency gap implies that fuel economy or greenhouse gas emissions standards could raise consumer welfare, but the literature has failed to resolve whether a gap exists. Previous research has not considered an opportunity cost of adopting fuel-saving technology, which arises from foregone performance. Using a unique data set and novel statistical techniques to account for the endogeneity of vehicle attributes, we find that consumers undervalue fuel cost savings, paying about 68 cents for one dollar of discounted future fuel cost savings. However, the estimated willingness to pay for performance implies that the cost of raising fuel economy, including the opportunity cost, exceeds the value, suggesting that an energy efficiency gap for fuel economy does not exist. The results imply that fuel economy and greenhouse gas standards may reduce consumer welfare.