Impacts of the Heterogeneity in Consumer Valuation of Fuel Economy on Corporate Average Fuel Economy Standards Compliance

This study investigated potential impacts of the heterogeneity in consumer valuation of fuel economy on the compliance with fuel economy standards with two analytical approaches. One approach is to provide theoretical analysis of the heterogeneity impacts on the market acceptance of high-efficiency vehicles. The other approach utilizes a consumer choice based simulation method to analyze the heterogeneity impacts on the compliance with the Corporate Average Fuel Economy (CAFE) Standards for the entire light duty vehicle fleet in the U.S. Our findings suggest two possible conditions which are defined based on relative acceptance of high-efficiency vehicles in the market, and they have different heterogeneity impacts: (1) the “Likely-Accept” condition – the CAFE compliance is highly possible, but the heterogeneity can add additional risks in the compliance; and (2) the “Likely-Reject” condition – the CAFE may have deficiency in compliance, but the heterogeneity can reduce the risks and improve the possibility in compliance. The two conditions are mainly dependent on consumers’ average valuation of fuel economy in the market, and are also affected by other factors, such as incremental cost of fuel efficiency technologies and future oil price projections.