As part of its efforts to reach the targets of the Kyoto Protocol, in April 2009 the European Commission enacted new legislation to reduce the per‐kilometer CO2 emissions of newly registered automobiles. This paper critically assesses this legislation with respect to its economic and technological underpinnings. First, we argue that the reliance on targets based on per‐kilometer emissions not only conceals the true cost of compliance and thereby stifles informed public discourse, but is also less cost‐effective than alternative measures such as emissions trading. Second, the emission targets stipulated in this legislation are based on linear‐regression methods that we demonstrate to be poorly justified and misleading. Using instead stochastic‐frontier analysis, which is argued to more accurately reflect the industry’s technological status quo, alternative targets are consequently proposed.
