FOR YOUR INFORMATION.................November 17, 1989



     The Federal Trade Commission staff has submitted comments to
the National Highway Traffic Safety Administration concerning 
potential environmental impacts of Corporate Average Fuel Economy
(CAFE) standards on automobiles.  

     The FTC staff noted "A major environmental effect of the CAFE
program comes from changes in gasoline consumption." According to
the staff, economic theory "suggests that a binding CAFE standard
can have several effects on gasoline consumption.  Firms may choose
to meet the standard either by engaging in technological innovation
or by selling relatively more fuel-efficient and fewer fuel-
intensive vehicles.  Through these means, CAFE standards can push
consumers into more fuel-efficient vehicles than they otherwise
might use.  This, by itself, would serve to decrease gasoline
consumption."

     However, the staff said, there are other effects that CAFE
standards may have on fuel consumption, and which should be fact-
ored into the estimates of gasoline savings.  First, "by changing
the price of new cars, CAFE standards can change the scrappage rate
of used cars.  Second, by increasing the fuel-efficiency of newer
vehicles, CAFE standards can lower the cost of driving additional
miles, which may increase the number of miles travelled."

     Third, CAFE standards can change the number of vehicles on
the road by altering the relative prices of automobiles.  Finally,
"by constraining the sales of less fuel-efficient vehicles by
companies that face a binding CAFE constraint, CAFE standards can
indirectly decrease the fuel-efficiency of the vehicles sold by
firms that do not face a binding CAFE constraint."

     The staff concluded, "These factors, individually and
together, may serve to significantly affect the potential for
gasoline savings for CAFE standards.  Therefore, we believe NHTSA
should consider these factors in estimating gasoline savings from
CAFE standards."

     The comments are the views of the staff of the Commission's
Bureau of Economics.  They are not necessarily the views of the
Commission or any individual Commissioner.

     Copies of the comments are available from the FTC's Public
Reference Branch, Room 130, 6th St. and Pennsylvania Ave. N.W.,
Washington, D.C. 20580; 202-326-2222; TTY 202-326-2502.

                             # # # 

MEDIA CONTACT:      Susan Ticknor, Office of Public Affairs, 
                    202-326-2181

STAFF CONTACT:      Andrew Kleit, Bureau of Economics,
                    202-326-3481

(CAFE)