A hedonic test of the effects of the Alternative Motor Fuels Act

Under the Alternative Motor Fuels Act (AMFA), vehicles that run on ethanol, methanol, or natural gas get extra credits in the calculation of Corporate Average Fuel Economy (CAFE). This paper uses hedonic techniques to examine the effect of production of alternative-fuel vehicles (AFVs) on the implicit price of fuel economy. This study finds that, after AFVs came to market, the marginal value of fuel economy from companies producing them decreased. This finding suggests that manufacturers who produced AFVs were willing to offer a lower price for fuel economy, because automakers had an additional way to achieve fuel economy standards beyond improving the fuel efficiency of conventional cars. These findings bolster the argument that a major role of the AMFA credit for AFVs is to allow automakers to increase their production of fuel-inefficient vehicles.

► We use hedonic techniques to examine the effect of production of alternative-fuel vehicles.
► The paper finds that, after AFVs produced, the marginal value of fuel economy decreased.
► It suggests AFV producers were willing to offer a lower price for fuel economy.
► The AFV credits allow automakers to increase their production of fuel-inefficient vehicles.