A key feature in the current U.S. fuel economy standards is its “footprint-based” fuel economy targets. Vehicle footprint is de!ned by the rectangle formed by a car’s wheelbase and track width. As shown in Figure 2, the CAFE standards allow larger cars to have lower fuel economy targets and require smaller cars to have more stringent fuel economy targets.

For example, to meet the 2012 targets, the smallest vehicles needed to achieve an average fuel economy of about 36 mpg, while the largest vehicles were required to average just 28 mpg. By 2025, the smallest vehicles would need to reach nearly 62 mpg. The largest cars, in contrast, would only need to reach 46 mpg.

Automakers need to meet the fuel economy targets by fleet average. Therefore, under this regulation, automakers that sell larger cars are faced with less stringent fuel economy targets, while automakers that sell smaller cars are faced with more stringent fuel economy targets.

This type of regulation is called “attribute-based regulation” because the stringency of the regulation (in this case, the fuel economy targets) depends on an attribute of products (in this case, the vehicle footprint of a car). These enormous differences in the fuel economy target create a perverse incentive for automakers, encouraging them to increase the manufacture and sales of larger vehicles in order to make the environmental regulation easier to meet. This is an unintended consequence for a policy designed to reduce fuel consumption because making cars bigger leads to poorer fuel economy.