An analysis of alternative fuel credit provisions of US automotive fuel economy standards

In the United States, alternative fuel vehicles are treated favorably in the calculations that are used to determine compliance with automotive fuel efficiency standards. We estimate that this favorable treatment is worth approximately $550–$1100 per alternative fuel vehicle in terms of avoided penalties. We use a dynamic simulation model to examine the implications of this favorable treatment of alternative fuel vehicles for the goals of oil displacement contained in the United States Energy Policy Act. Welfare analysis shows that the favorable treatment of alternative fuel vehicles costs $66 million or about 84 cents per gallon of gasoline displaced in the base case. Policy scenarios show greater costs. Whether this money is well spent depends on oneʹs views of the need to build alternative fuel and vehicle infrastructure and the goal of oil displacement.