Environmental Regulation and Product Attributes: The Case of European Passenger Vehicle Greenhouse Gas Emissions Standards

Many energy consuming consumer durable goods, such as home appliances and vehicles, are subject to energy efficiency or greenhouse gas standards. We show, in theory and in practice, that because of demand and supply linkages across product attributes, such standards can affect consumer welfare via a broader range of attributes than the literature has considered. We demonstrate these effects as part of the first retrospective analysis of European passenger vehicle standards for carbon dioxide. The standards have substantially reduced fuel consumption and emissions, but changes in other attributes undermine at least 25 percent of the welfare gains of the standards.