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11 Consumer Acceptance and Market Response to Standards
Pages 303-333

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From page 303...
... Last, if a manufacturer were to increase the footprint of its vehicles or redesigned cars so that they are classified as light trucks, it would reduce the overall standard the manufacturer needs to attain. Based on recent automaker decisions and their announced plans, each automaker can be expected to pursue a combination of these options, taking into consideration consumer preferences, technology implementation costs, competition with other automakers, and other market factors.
From page 304...
... These trends reflect responses to previous standards together with other market developments and technological change. Then, key economic concepts for understanding consumer acceptance are presented: rebound effects in response to fuel economy changes, how consumers value fuel economy and vehicle attributes, and the economic approaches for understanding this consumer valuation, from a traditional and behavioral perspective.
From page 305...
... 0.034 0.059 76%   Passenger cars 0.034 0.059 75%   Light trucks 0.035 0.060 72% Production share   Passenger cars 80.7% 49.8% −38%   Light trucks 19.3% 50.2% 160% NOTE: Fuel economy has risen, while GHG emissions have fallen, in concert with increases in weight, power, power-to-weight ratio, and production share of light trucks over passenger cars.
From page 306...
... in 1975 to 405 g/mi in 1987, then began to increase until 2004 as sales shifted toward more light trucks relative to passenger cars. In 2004, the sales-weighted average GHG emissions were 461 g/mi.
From page 307...
... Trends in vehicle attributes show that for most vehicle segments, improvements in both fuel efficiency and power over the past 30 years have been accomplished, while sales-weighted average vehicle weight increased. This indicates that adoption of fuel economy technologies has improved the operating efficiency of these vehicles.
From page 308...
... 11.1.2 Changes in Market Share Examining the market share of vehicle segments, it is clear that the share of light trucks relative to passenger cars has been increasing. Since 1975, the market share of sedans and wagons has declined, and the share of sport utility vehicles (SUVs)
From page 309...
... . FIGURE 11.5  Production share of car and truck categories over model years 1975–2018.
From page 310...
... However, there is still consequential disagreement about its magnitude. The size of the rebound effect matters because it affects the ability of fuel economy improvements to reduce externalities like GHG emissions and because vehicle travel also has unintended consequences like traffic congestion and local air pollution.
From page 311...
... They again found a declining rebound effect over time but a somewhat higher rebound effect in the 2002–2009 period, possibly caused by higher gasoline prices. They also found decisively asymmetric responses to rising versus falling fuel cost per mile and reasoned that the effect when fuel costs per mile decreased would be a better measure of the rebound effect of increased fuel economy.
From page 312...
... One set of explanations is consistent with a utility maximization framework, in which it appears to researchers that consumers undervalue fuel cost savings. For example, if fuel economy improvements caused by standards
From page 313...
... . When assessing whether consumers undervalue fuel cost savings, analysts must make assumptions on the discount rate that consumers use to assess future fuel cost savings.
From page 314...
... and the SAFE rulemaking (NHTSA/EPA, 2020) , manufacturers believe that consumers significantly undervalue fuel economy and are typically willing to pay for only around 2.5 years of expected future fuel savings, consistent with the predictions of loss aversion (Greene, 2019)
From page 315...
... If loss aversion does not apply to fuel economy improvements required by standards, as discussed above, there could be other reasons why consumers undervalue technology-based fuel economy improvements. 11.3.3 Implications for New Vehicle Sales and Used Vehicle Retirements If fuel economy and GHG standards require manufacturers to produce and sell vehicles that consumers consider less desirable than the vehicles that would have been produced in the absence of standards, new vehicles sales would be lower than they would have been without the standards.
From page 316...
... , standards can deliver vehicles whose fuel savings substantially exceed their increased prices and that will be accepted by consumers. Absent loss aversion, consumers are likely to appreciate the value of future fuel savings and therefore be pleased with the new, more fuel-efficient vehicles.
From page 317...
... beliefs, and benefits and costs are evaluated using the realized outcomes. For example, if consumers undervalue fuel cost savings, the undervaluation would be accounted for when they are choosing which vehicle to buy, but their mistake would be corrected for when evaluating consumer benefits of lower fuel costs.
From page 318...
... 11.4.1 Market Failures and Company Responses to Disruptive Change All companies in the motor vehicle industry face challenges in the shift to new vehicle technologies such as battery electric vehicles (BEVs) , fuel cell vehicles, and connected and automated vehicles.
From page 319...
... Notwithstanding all these barriers and disincentives, vehicle manufacturers are not opposed to battery electric, fuel cell, and connected and automated vehicles in principle. All major vehicle manufacturers now recognize the need to address climate change and reduce fossil fuel consumption, and have publicly stated that they want to be part of the solution rather than the problem (Toyota Motor Company, 2020; Volkswagen Group, 2020; Ford Motor Company, 2020; Honda, 2020; General Motors, 2016; Nissan Motor Coporation, n.d.; among others)
From page 320...
... . Consumer innovation resistance has a number of potential contributing factors, including functional barriers and risk barriers (Ram and Sheth, 1989)
From page 321...
... . Analysis of public experiences in that country indicate that the two biggest factors for the mainstream uptake of BEVs was government subsidies and tax breaks that made BEVs cost-competitive with ICEs,11 and improvements in performance, addressing c­ onsumers' 11 The Norwegian government provides purchase incentives for BEVs by exempting purchases of such vehicles from the value added tax (VAT)
From page 322...
... Education on the differences among BEVs, plug-in hybrid electric vehicles (PHEVs) , and other powertrain types may also present consumers with the opportunity to correct misperceptions and evaluate the BEV technology with a moreinformed understanding of the technology.
From page 323...
... Purchase subsidies, such as tax credits, are one-time monetary benefits that are directly perceived by consumers to offset the price of the vehicle and typically paid by the government. Operational incentives are the tangible or intangible benefits repeatedly received by PEV owners during the ownership of the vehicle, typically in forms of access to privileged lanes (e.g., high-occupancy vehicle [HOV]
From page 324...
... Massachusetts, Oregon, California, Connecticut, and New York provided up to $2,000–$2,500 per BEV. Purchase subsidies have been generally smaller for PHEVs and greater for fuel cell electric vehicles, if available.
From page 325...
... . As a result, the value of incentives in Table 11.1 for China should be approximately doubled to account for the PEV purchase subsidies in major cities of China that restricts purchase of conventional ICE vehicles.
From page 326...
... They also include a 2.4% VAT reduction. SOURCE: Reprinted from Renewable and Sustainable Energy Reviews, 80, Hardman et al., The effectiveness of financial purchase incentives for battery electric vehicles -- A review of the evidence, 1100–1111, Copyright (2017)
From page 327...
... All of these factors point to the need for continuing and even strengthening the purchase subsidies, unless the aforementioned factors can be quickly improved for facilitating PEV adoption. Consumer heterogeneity is another important factor and perspective for redesigning the PEV purchase incentives.
From page 328...
... RECOMMENDATION 11.6: Battery electric vehicle and fuel cell vehicle sales can contribute to meeting more stringent corporate average fuel economy standards, so governments should seek to stimulate consumer demand for such vehicles through infrastructure investments, purchase subsidies, public education programs (for both consumers and dealerships) , and other incentives.
From page 329...
... 2019. Battery Electric Vehicle User Experiences in Norway's Maturing Market.
From page 330...
... 2017. The effectiveness of financial purchase incentives for battery electric vehicles -- A review of the evidence.
From page 331...
... 2020. How does experience impact the adoption willingness of battery electric vehicles?
From page 332...
... 2017. Direct experience with battery electric vehicles (BEVs)
From page 333...
... 2015. Plug-in electric vehicle market penetration and incentives: A global review.


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