Impacts of the consumer heterogeneity in fuel economy valuation on compliance with fuel economy standards

This study quantified the significance of assuming heterogeneity in consumer valuation of fuel economy on the estimated compliance with fuel economy standards, with two approaches. One is mathematical derivation on how the heterogeneity affects the estimated market acceptance of high-efficiency vehicles. The other is a consumer choice based simulation method to analyze the heterogeneity impacts on the compliance with the fuel economy standards for the entire light duty vehicle fleet in the United States. Our findings suggest that the direction of the impact of heterogeneity assumption depends on market positions of high-efficiency vehicles: (1) with the “Likely-Accept” condition, where high-efficiency vehicles sell well and higher achieved fuel economy is expected, the heterogeneity assumption can add additional risks to the compliance; and (2) with the “Likely-Reject” condition where the fuel economy standards may have difficulty in compliance, the heterogeneity can reduce the risks and improve the compliance outcome. It is concluded that consideration of fuel economy valuation heterogeneity is important in fuel economy standard analysis. It is hoped that such consideration may provide a framework to reconcile the different views on consumer valuation of fuel economy.