Emerging Markets for Biofuels

Emerging Markets for Biofuels

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Another chapter of this dissertation analyzes the market for flexible-fuel vehicles. Corporate Average Fuel Economy (CAFE) regulations feature a qloopholeq that credits gasoline-ethanol flexible-fuel vehicles with far better mileage than they actually achieve. Empirical evidence shows that firms affected by CAFE standards produce flexible-fuel vehicles to exploit this loophole and that marginal consumers do not value flexible-fuel capacity. Under these and other conditions an automaker will equate the marginal cost of improving mileage using flexible-fuel vehicles with the marginal cost of improving mileage through other means. This insight implies that one can infer the marginal cost of complying with CAFE standards for automakers that produce flexible-fuel vehicles. Based on this approach, the estimated cost of tightening CAFE standards by one mile per gallon is at most $10--$20 in lost profit per vehicle for domestic automakers, assuming incremental production costs of $100--$200 for flexible-fuel vehicles. These are valuable estimates for economists and regulators, as automakers may overstate costs to avoid tighter standards.... Durango and Ram Pickup; 2.7L car is the Stratus and Sebring; 3.2L car is the Mercedes C240; 2.6L car is the Mercedes C230. ... Compliance data for the 2007 model year and beyond are not yet available. summary, automakers respond as anbsp;...

Title:Emerging Markets for Biofuels
Author:Soren Tyler Anderson
Publisher:ProQuest - 2008


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