OVERVIEW: This activity simulates a policymaking process to reduce carbon dioxide emissions from the U.S. personal transportation sector (i.e., automobiles).

| March 14, 2016

OVERVIEW: This activity simulates a policymaking process to reduce carbon dioxide emissions from the U.S. personal transportation sector (i.e., automobiles).

In this activity, assume that the stringency of the policy is chosen to reduce domestic carbon dioxide emissions by exactly the same amount—10% below baseline levels. Thus, the overall impact on carbon dioxide emissions will be identical in each case, but the impacts on other outcomes will differ.

The outcomes to be considered are the following, which in some cases you may actually be able to estimate numerically by attaching the appropriate parameter values (e.g., the slope of the fuel demand curve) to the graphical model and/or by appealing to applied economics research:

Consumer fuel prices, fuel consumption, and miles driven
Automobile prices, sales, fuel economy, and other related attributes (e.g., size and horsepower)
Food and grain commodity prices
Consumer surplus (households, meat & food production, and other affected industries)
Producer surplus (automakers, oil & gasoline, farmers & ethanol industry)
Environmental externalities (e.g., carbon emissions, air & water pollution, wildlife & ecosystems)
Traffic safety (i.e., accidents, injuries, and fatalities)
Human health and quality-of-life (e.g., traffic congestion)
National energy & economic security (e.g., dependence on imported energy)
Government revenues

The policy to be considered are described in detail below.

Renewable fuel standard (RFS): This policy requires a minimum quantity of renewable fuel. Assume that this standard is satisfied using half corn-based ethanol and half cellulosic ethanol (e.g., from crop residues and dedicated bioenergy feedstocks), which is roughly consistent with the current policy. This policy creates economic incentives akin to subsidies for corn-based and cellulosic ethanol. We will assume that this policy is binding on the domestic gasoline industry..

[1] With the renewable fuels, such as corn ethanol and cellulosic ethanol, it is important to consider their “life-cycle” carbon emissions, which account for carbon generated upstream in the production process (e.g., fossil-fuel energy used in the production process for corn-based ethanol). It is also important to account for the fact that ethanol contains less energy per gallon than gasoline by performing calculations on an “energy-adjusted” or “gasoline-equivalent” basis.

Extended analyses conducted by independent groups

National Academy of Sciences (2002), “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,” available online here: http://www.nap.edu/catalog.php?record_id=10172

Economic policy analyses (aimed at a more general audience)

Anderson’s “EPS Graphical Model” slides (see course website under EPS)
Anderson and Sallee (2016), “Designing Policies to Make Cars Greener: A Review of the Literature” (see course website under EPS).
Anderson, Fischer, Parry, and Sallee (2011), “Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives,” Review of Environmental Economics and Policy 5 (1): 89-108, available online here: https://www.msu.edu/~sta/AndersonParrySalleeFischer_cafe_REEP.pdf
Holland, Stephen, Jonathon Hughes, and Christopher Knittel (2007), “The Economics of a Low-Carbon Fuel Standard,” CSEM Research Review, available online here: http://ei.haas.berkeley.edu/research/reviews/2007Fall.pdf

Economic policy analyses (more technical economic research papers)

Holland, Hughes, and Knittel. (2009), “Greenhouse Gas Reductions under Low Carbon Fuel Standards?” American Economic Journal: Economic Policy, 1(1): 106-46, available online here: http://www.aeaweb.org/articles.php?doi=10.1257/pol.1.1.106
Chen, Huang, Khanna, and Onal (2012), “Meeting the Mandate for Biofuels Implications for Land Use, Food, and Fuel Prices,” in The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies, available online here: http://works.bepress.com/cgi/viewcontent.cgi?article=1009&context=xiaoguang_chen

Jacobsen (2012), “Evaluating U.S. Fuel Economy Standards In a Model with Producer and Household Heterogeneity,” forthcoming in American Economic Journal: Economic Policy, available online here: http://www.econ.ucsd.edu/~m3jacobs/Jacobsen_CAFE.pdf

Relevant data sources (both for group memos and individual reports)

Energy Information Administration (EIA): http://www.eia.gov/
EPA fuel economy data files: http://www.fueleconomy.gov/feg/download.shtml

Technical and political background on the policies from the regulators themselves[1]

Department of Transportation website on the CAFE standard: http://www.nhtsa.gov/fuel-economy
EPA website on the RFS: http://www.epa.gov/otaq/fuels/renewablefuels/index.htm
California Air Resources Board website on LCFS: http://www.arb.ca.gov/fuels/lcfs/lcfs.htm

[1] Scan the documents associated with these regulations to learn what the regulations actually require (see the “Final Rule” documents), what the predicted impacts of the regulations are (see the “Regulatory Impact Analysis” documents), the reactions that different interest groups have to the regulations (see, for example, the “Response to Comments” and other documents), and various other documents that look relevant and interesting.

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