TO REBATE OR NOT TO REBATE: FUEL ECONOMY STANDARDS VERSUS FEEBATES

We compare the welfare effects in equilibrium of two environmental regulations that aim at increasing the new cars fleet's average fuel efficiency: the fuel economy standards and the feebate policies. Maintaining the same environmental benefit and tax revenue, we simulate each policy in France and the US. Standard-type policies have larger negative welfare effects, up to 1.7 times those from the feebate. Effects on manufacturers are heterogeneous: some are better off under the feebate. A market to trade levels of fuel efficiency dominates the simple standard regulation and the feebate. We also consider the attribute-based standard and technological improvements.