The Macroeconomic Effects of 2017 Through 2025 Federal Fuel Economy and Greenhouse Gas Emissions Standards

In the absence of a national carbon price, the federal Corporate Average Fuel Economy standards and the related greenhouse gas emissions (GHG) standards are the primary mechanisms through which the U.S. reduces transportation GHG emissions. In 2012, these standards were set to rise for light-duty vehicles between 2017 and 2025, eventually achieving a target of 54.5 miles per gallon in 2025. Since 2012, conditions have changed: forecasts of future gasoline prices have dropped dramatically, consumers have demanded larger vehicles, and the cost of compliance appears to be larger than previously thought. In this article, we analyze the possible macroeconomic effects of the standards with both 2012 inputs and updated inputs to reflect these new market developments. The results reveal that the short-term effects of the federal standards will be negative, but the long-term effects will be positive, using both 2012 and updated inputs. The transition from annual negative employment impacts to positive impacts occurs between 2023 and 2026, depending on which set of assumptions are used. Possible revisions to the standards that freeze them at 2020 levels or decrease their stringency reduce short-term negative impacts but also reduce long-term positive impacts. We conclude with a discussion of policy implications as they relate to the current energy and climate policy conditions.