Environmental Policy and Induced Technological Change: Evidence from Automobile Fuel Economy Regulations

Takahiko Kiso (Corresponding Author)

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Abstract

This paper investigates whether environmental or energy-efficiency regulations induce innovations in relevant technologies through focusing on the tightening of Japanese fuel economy regulations in the 1990s and the early 2000s. Unlike previous studies that analyze patent data, I use vehicle-level specification data for 1985–2004 to estimate whether regulatory pressure accelerated technological progress in fuel efficiency. I compare Japanese automakers with selected American and European automakers in a difference-in-differences framework. The estimation results provide strong evidence for induced technological change: conditional on other vehicle attributes and the production cost, the regulatory tightening induced at least a 3–5% improvement in the average Japanese vehicle’s fuel economy relative to a counterfactual case with no regulatory change, an effect that it would have taken at least 4–7 years for automakers to achieve with no pressure from fuel economy regulations or fuel prices.
Original languageEnglish
Number of pages26
JournalEnvironmental and Resource Economics
Early online date21 May 2019
DOIs
Publication statusE-pub ahead of print - 21 May 2019

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technological change
environmental policy
automobile
production cost
energy efficiency
innovation
regulation
economy
Automobile
Environmental policy
Induced technological change
vehicle

Keywords

  • vehicles
  • fuel economy regulations
  • induced innovation
  • technological change
  • Induced innovation
  • Technological change
  • Fuel economy regulations
  • Vehicles

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

Cite this

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abstract = "This paper investigates whether environmental or energy-efficiency regulations induce innovations in relevant technologies through focusing on the tightening of Japanese fuel economy regulations in the 1990s and the early 2000s. Unlike previous studies that analyze patent data, I use vehicle-level specification data for 1985–2004 to estimate whether regulatory pressure accelerated technological progress in fuel efficiency. I compare Japanese automakers with selected American and European automakers in a difference-in-differences framework. The estimation results provide strong evidence for induced technological change: conditional on other vehicle attributes and the production cost, the regulatory tightening induced at least a 3–5{\%} improvement in the average Japanese vehicle’s fuel economy relative to a counterfactual case with no regulatory change, an effect that it would have taken at least 4–7 years for automakers to achieve with no pressure from fuel economy regulations or fuel prices.",
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