Paving the Path to Fuel Efficiency: How Federal Policies and the Market Address Gasoline Use in the United States

Since gasoline is one of the most popular transportation fuel sources worldwide, policymakers are interested in using the tools available to them to alter their citizens’ demand. Policymakers believe that without regulations, car companies will not develop and adopt technology that reduces gasoline use. The most common motivations behind policy are to discourage gasoline consumption for environmental externality issues or reduced foreign reliance. In order to predict policy results, consumer response to changes in price and vehicle attributes must be accurately known. Automobile manufacturers similarly attempt to understand consumer demand in order to reach their preferences. This paper utilizes market process theory, public choice, and the dynamics of intervention theory to analyze the predicted and actual consumer responses to policies by looking at how successful the fuel efficiency policies have been at achieving their goals. Specifically the ability of Corporate Average Fuel Economy Standards and Renewable Fuel Standard to achieve reduction in fuel use is reviewed. The market mechanisms of consumer preferences and price feedback are then examined as to how they can achieve the same goals. This paper highlights the racing industry as a testing ground for new and better technology which can spillover to production cars. This happens, to some extent, apart from government policy influence.