Abstract
Corporate Average Fuel Economy (CAFE) standards and CO2 emissions standards for 2012 to 2016 have significantly increased the stringency of requirements for new light-duty vehicle fuel efficiency. This study investigates the role of technology adoption and pricing strategies in meeting new standards, as well as the impact of feebate policies. The analysis is carried out by means of a dynamic optimization model that simulates manufacturer decisions with the objective of maximizing social surplus while simultaneously considering consumer response and meeting CAFE and emissions standards. The results indicate that technology adoption plays the major role and that the provision of compliance flexibility and the availability of cost-effective advanced technologies help manufacturers reduce the need for pricing to induce changes in the mix of vehicles sold. Feebates, when implemented along with fuel economy and emissions standards, can bring additional fuel economy improvement and emissions reduction, but the benefit diminishes with the increasing stringency of the standards.