Fuel Efficiency: A Good Deal

by Stuart Shapiro

The first argument against requiring or incentivizing automakers to make more fuel efficient cars is always the cost.  Hahn and Passell describe a new study that shows that the costs for increasing fuel efficiency are quite low. (The paper itself for the technically minded is here):

According to Soren Anderson (Michigan State) and James Salee (Chicago), it’s possible to infer this cost from the automakers’ choice of whether to exploit a loophole in the law that gives them mileage credits for flex-fuel vehicles. Their estimate, by the way, is startlingly modest – no more than $18 (measured in lost profit per car) to increase fuel economy by one mile per gallon.

The benefit-cost analysis of  requiring fuel efficiency was already pretty good given the benefits of curbing climate change and reducing our dependency on foreign oil, but if the costs are this low, then it is a no-brainer.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.