This paper, from Resources for the Future, discusses several rationales for the Corporate Average Fuel Economy (CAFE) program, including reduced oil dependence, reduced greenhouse gas emissions, and the possibility that fuel saving benefits from higher standards might exceed added vehicle costs. It then summarizes what can be said about the welfare effects of tightening standards, accounting for prior fuel taxes, and perverse effects on congestion and traffic accidents through the impact of improved fuel economy on the incentive to drive. Implications of CAFE on local air pollution, and the controversy over CAFE, vehicle weight, and road safety, are also discussed. Finally, it describes ways in which the existing CAFE program could be substantially improved and identify a variety of alternative, and much superior, policy approaches.

Access the publication here: The economics of fuel economy standards.