The price as a result of that. This

journal article “Evaluating U.S Fuel Economy Standards In a Model with Producer
and Household Heterogeneity,” by Mark R. Jacobsen provides an examination of
the actions producers take in the automotive industry to meet fuel standards
and examines welfare costs with an increase under the restrictions of CAFE
standards (Jacobsen, 2012). Jacobson examines studies that have shown that
these CAFÉ standards have less of an effect on negative externalities than
gasoline taxes. Gasoline taxes reduce the amount of negative externalities than
fuel standards. Altering the prices of the externality directly is a better
route to go. This allows there to be more flexibility, influence consumer
vehicle choice and lower the amount of miles driven (Jacobson, 2012). Jacobson
Discussed three main challenges that producers face under the stringency of
CAFE. First, Jacobson highlights that the firms are not necessarily paying
fines or penalties. Rather, Jacobson suggests that there are shadow costs that
the firms encounter when they are attempting to meet the requirements of these
fuel standards. Secondly, he highlights that it is difficult to measure welfare
effects across both markets for gasoline and vehicles. He argued that CAFE generally
has evaluated the demand in the markets for individual cars and gasoline
separately. Thirdly, Jacobson highlights the issue that most of the literature
the looks a t CAFE standards effects have been on the markets for new vehicles
(Jacobson, 2012). These studies are not taking into account a large portion of
cars that consumers drive that are used.

The journal article “Chrysler to
build more hybrids after all: Expected tougher CAFE standards spur Marchionne
to rethink strategy” by Luca Ciferri looks at the decisions by a major vehicle
manufacturer’s response to more strict CAFÉ standards. Firms want to act in
their own interest to get the best profit they can with respect to market
conditions. Hybrid vehicles are a vehicle type which the producing firm will
inherit higher cost of production and have a higher price as a result of that.
This will lower the amount would and will increase cost on the firm. The United
States has proposed to increase CAFE standards quite a bit by 2025(Ciferri,
2013). Chrysler automotive now has no other choice but to partake in the
production of these higher cost vehicle types. CAFE standards are causing firms
to make decisions about what their vehicle fleets consist of. President Obama
stated that he proposes a “54.5 mpg in light trucks in 2025 and reach 35.5 mpg
for 2016. This is quite a significant jump in projection” (Ciferri, 2011). CAFE
standards have a pretty significant effect on a firm’s decision making. They
are helpful in changing the market because they address direct market
conditions which sparks action. These Standards have an effect on what
decisions firms make.

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The article “The article role
of CAFE standards and alternative-fuel vehicle production credits in U.S.
biofuels markets” by Jarrett Whistance and Wyatt Thompson observes the impacts
of CAFÉ standards and alternative fuel vehicle production incentives on the
biofuel market (Whistance et al., 2014).  The article looks at policies that make up the
Renewable Fuel Standard. This fuel standard makes it so that there is a certain
amount of biofuel use every year. This is in effect until at least the year
2022 (Whistance et al., 2014). Whistance and Thompson focus primarily on
Corporate Average Fuel Economy and Alternative Motor Fuel incentives. CAFÉ standards
influence biofuel production but not majorly. AFV incentives and CAFÉ together
may influence biofuel demand in the US. The authors developed a model of the
light-duty vehicle sector in the United States in an attempt to simulate path
that looks ahead for these markets (Whistance et al., 2014). The study runs
through three scenarios. The first examines a scenario where there are constant
2010 CAFÉ requirements.  With this model,
the combined car and truck standard is held at 26 mpg.  In this scenario AMFA is phased out.  The second scenario is one where AMFA credits
are extended. CAFÉ standards would rise with the current policy. The third scenario
assumes constant 2010 CAFÉ requirements with AMFA credit extension, which is a combination
of the first two scenarios (Whistance et al., 2014). They conclude that CAFÉ standards
are projected to become stricter which would potentially begin to phase out flexible
fuel vehicles which use high level gasoline and ethanol blends (Whistance et
al., 2014). The authors also conclude there is a good relationship between
transportation and biofuel policies. The CAFÉ standards alone have a large
influence how much fuel is consumed by light duty vehicles. These more fuel
efficient vehicles consume less fuel overall. “However renewable fuel standards
may increase the amount of renewable fuels used. The study found that changes
to CAFÉ standards will make renewable fuel standard targets more difficult to
meet. CAFÉ standards are estimated to lower the money spent on both vehicles
and fuel by about $80 billion per year and the cost of compliance rises by
about $12 billion” (Whistance et al., 2014). The make it clear that they are
not trying to promote or argue for any specific policy. This study is simply an

journal article “EPA, NHTSA Finalize
54.5-MPG CAFE Standards for U.S. Vehicles” by Jack Peckham looks at the effects
CAFE standards will have, The Environmental protection agency and the National
Highway Traffic safety administration finalized regulations that will force US  automotive makers to meet a 54.4 mpg CAFE
standard by the year 2025 (Peckham, 2012).