Governments around the world are increasingly intervening in automobile markets to improve fuel economy and reduce emissions of CO2 from new vehicles. This report reviews the rationale for such intervention and examines measures for maximum effectiveness and minimum cost.

The Round Table brought together economists, policy makers and auto engineers with the aim of advancing understanding of why car markets currently fail to deliver sufficient fuel economy. It started by questioning whether any additional measures would be necessary once an appropriate price for carbon dioxide is established via fuel taxes. It confirmed that there are indeed market imperfections that merit additional government intervention. Fuel economy and CO2 regulations are an essential part of the package. The key to maximising the benefits of such regulations is long-term planning. The longer the timeframe, the less industry investment is handicapped by uncertainty.

Subsidies to electric vehicles are more problematic because of the risks of prematurely picking winning technologies and creating subsidy dependence. And electricity production has yet to be decarbonised. However, intervention to steer innovation in this direction is merited so long as the risks of not attaining climate policy targets are seen as higher than the risks of intervention.

Summary of Discussions
Combinations of Instruments to Achieve Low-Carbon Vehicle-Miles, by Don Fullerton and Daniel H. Karney (USA)
-1. Introduction
-2. Too Much Pollution, Too Many Cars, Too Many Miles
-3. Current Policies in the United States and Europe
-4. Benefits, Costs and Externalities
-5. The “Ideal” Tax on Emissions
-6. Holistic Approach
-7. Potential Alternative Instrument Combinations
-8. Additional Complexity
-9. Conclusions
Why the Market for New Passenger Cars Generally Undervalues Fuel Economy, by David Greene (USA)
-1. Introduction
-2. Fuel Economy and the Rational Economic Consumer
-3. Empirical Evidence of Consumers’ Willingness-To-Pay for Fuel Economy
-4. Uncertainty and Loss Aversion: Context-Dependent Preferences
-5. Concluding Observations
The Impact of Economic Instruments on the Auto Industry and the Consequences of Fragmenting Markets – Focus on the EU Case, by Luc Bastard (France)
-1. Abstract
-2. Overview of Fiscal Measures in the European Union for Reducing Co2 Emissions from Conventional Cars
-3. How Can OEMs Manage the Taxation?
-4. Economic Incentives for Future Electric Vehicles and Very Low CO2 Vehicles?
-5. Conclusions