Corporate Average Fuel Economy Standards 2017-2025 Harvard Case Solution & Analysis

In December 2011, the U.S. National Highway Traffic Safety (NHTSA) and the Environmental Protection Agency issued a joint proposal to dramatically increase fuel economy and reduce greenhouse gas emissions of passenger cars and light trucks sold between 2017 and 2025. The joint proposal was created in response to President Obama's call for both institutions to rely on a national program that will "produce a new generation of clean vehicles." By 2025, new cars and light trucks were to achieve an unprecedented average fuel consumption by up to 50 miles per gallon (MPG), reducing fuel consumption by 4 billion barrels of oil and reduce greenhouse gas emissions by 2 billion tons of carbon dioxide over the lifetime of new cars. NHTSA predicted that the national program will generate benefits of $ 323 million primarily in the form of savings in fuel costs for vehicle owners, the amount of four times the cost. This case has a deeper look at the regulatory impact analysis for the 2017-2025 NHTSA regulation of fuel consumption and consider the proposed social benefits and costs of the program. According to an analysis by NHTSA private benefits for vehicle owners several times the cost, while the external benefits are modest and more than offset the loss of income tax on gasoline. The case is considered NHTSA explanation for the apparent paradox: if there is a large net gain for vehicle owners (and manufacturers that best meet customer preferences) on vehicles with higher miles per gallon, why the market does not produce more fuel efficient vehicles on its own? May be standard market failures may inconsistencies in the model of consumer behavior, or an error in the assessment of the agency costs or benefits? Are more traditional market failures proposed by NHTSA (imperfect competition in the automotive industry and the limited information) logical explanation? Case Number 1973.0 "Hide
by Anjani Datla, Albert Nichols Source: Harvard Kennedy School 16 pages. Publication Date: December 3, 2012. Prod. #: HKS727-PDF-ENG

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