Citation

Discussion Paper Details

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Title: A Green Light for Environment, or a Green Light for Protection? The EU-US Dispute Over US Corporate Average Fuel Economy Regulations

Author(s): Joseph Francois and H�kan Nordstr�m

Publication Date: April 1996

Keyword(s): Corporate Average Fuel Economy (CAFE), GATT, Trade and Environment and Trade Dispute

Programme Area(s): International Trade and Regional Economics

Abstract: The US Corporate Average Fuel Economy (CAFE) regulation mandates, subject to a civil penalty, producers to achieve a certain fleet average fuel economy on sales of new passenger cars. Analysing the incentive effects of CAFE, we find that it affords differential tax treatment to car models with identical fuel economy, and therefore differential incentives for improvements. In fact, the incentives may be negative for producers that specialize in small or large models. This casts doubt over the environmental merits of fleet averaging. Moreover, product-mix taxes can be abused by exploiting the specialization patterns of domestic and foreign firms.

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Bibliographic Reference

Francois, J and Nordstr�m, H. 1996. 'A Green Light for Environment, or a Green Light for Protection? The EU-US Dispute Over US Corporate Average Fuel Economy Regulations'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1373