Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards

Thomas Klier and Joshua Linn

December 2013

Thomas Klier and Joshua Linn, December 2013

Many countries are tightening passenger vehicle fuel economy standards. In assessing the welfare effects of standards, the literature has not properly accounted either for their effects on the rate of technology adoption, or for improvements in vehicle characteristics in the absence of tightening standards. A dynamic model shows that accounting for both factors has ambiguous effects on estimated welfare costs. We find that recent U.S. and European standards have affected the rate of technology adoption as well as horsepower and torque. Estimated welfare losses from reduced horsepower and torque are of similar magnitude to the welfare gains from fuel savings.

JEL codes: L62, Q4, Q5

Keywords: passenger vehicles, U.S. greenhouse gas emissions rate standards, European carbon dioxide emissions rate standards, technology adoption

For Associates Only

As a benefit to our Associates, the latest Working Papers are embargoed for a period of up to six months before becoming accessible to the public. If you are interested in becoming an Associate or learning more about the benefits of sponsorship, please click here, or email us at

If you are a CEEPR Associate or CEEPR staff member, please visit the login page here: