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Rising oil prices and concerns about energy security and climate change are pressuring automakers to produce vehicles with better fuel economy and reduced greenhouse-gas emissions. This Policy Insight discusses four innovations to fuel and engine technology that automakers will be developing over the next decade: gasoline-electric hybrid technology, advanced diesel technology, vehicles powered by a blend of ethanol and gasoline, and improvements to the traditional gasoline engine. Keefe, Griffin, and Graham highlight the advantages and disadvantages of each, drawing on a benefit-cost analysis in which they calculate the value of the three alternative technologies from a societal perspective, taking into account technology costs, fuel savings, performance benefits, pollution estimates, reductions in oil use, the cost of greenhouse-gas emissions, and other factors. They conclude that advanced diesels and gasoline-electric hybrids have a promising future but that policymakers appear to be favoring ethanol-fueled vehicles through a variety of regulations and tax subsidies.

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