Emerging Markets for Biofuels

Emerging Markets for Biofuels

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Another chapter of this dissertation analyzes the market for flexible-fuel vehicles. Corporate Average Fuel Economy (CAFE) regulations feature a qloopholeq that credits gasoline-ethanol flexible-fuel vehicles with far better mileage than they actually achieve. Empirical evidence shows that firms affected by CAFE standards produce flexible-fuel vehicles to exploit this loophole and that marginal consumers do not value flexible-fuel capacity. Under these and other conditions an automaker will equate the marginal cost of improving mileage using flexible-fuel vehicles with the marginal cost of improving mileage through other means. This insight implies that one can infer the marginal cost of complying with CAFE standards for automakers that produce flexible-fuel vehicles. Based on this approach, the estimated cost of tightening CAFE standards by one mile per gallon is at most $10--$20 in lost profit per vehicle for domestic automakers, assuming incremental production costs of $100--$200 for flexible-fuel vehicles. These are valuable estimates for economists and regulators, as automakers may overstate costs to avoid tighter standards.At the end of the day, the detailed transaction data allow us to identify and compare, for example, the price of a gasoline-only 2006 Ford F150 extended-cab pickup with a 5.4L V8 engine and manual transmission to the price of a flexible- fuelanbsp;...

Title:Emerging Markets for Biofuels
Author:Soren Tyler Anderson
Publisher:ProQuest - 2008


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