Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect

Abstract

Abstract:We estimate the rebound effect for motor vehicles, by which improved fuel efficiency causes additional travel, using a pooled cross section of US states for 1966-2001. Our model accounts for endogenous changes in fuel efficiency, distinguishes between autocorrelation and lagged effects, includes a measure of the stringency of fuel-economy standards, and allows the rebound effect to vary with income, urbanization, and the fuel cost of driving. At sample averages of variables, our simultaneous-equations estimates of the short-and long-run rebound effect are 4.5% and 22.2%. But rising real income caused it to diminish substantially over the period, perhaps aided by falling fuel prices. With variables at 1997-2001 levels, our estimates are only 2.2% and 10.7%, considerably smaller than values typically assumed for policy analysis. The point estimates suggest that the rebound effect would remain constant if real incomes continue to grow and fuel prices were to grow about 3.5 times as fast. JEL-codes: Q0, D5, R4, C2 Keywords:carbon dioxide, fuel economy, travel demand, motor vehicle use, rebound effect Acknowledgment:

Long-Run Demand for Energy Services: Income and Price Elasticities over Two Hundred Years

“…The estimates for transport elasticities are a little higher than recent estimates, such as Small and van Dender (2007), which focussed only on car travel rather than total aggregate transport (which includes substitution between modes).…”

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“…This study predicted that a complete hybridization of the U.S. light vehicle fleet by 2050 would result in an average stock fleet fuel economy of 33.0 MPGsrepresenting a 29% increase over the conventional 2050 vehicle fleet. We assume that households will respond in turn by increasing their average daily VMT by 5.8% relative to the base-case, reflecting the historic rebound effect of 2% for every 10% increase in MPG (15). Based on these assumptions, we calculated our HEV emissions adjustment factor as follows:…”

“…This means that, historically, a 10% increase in average fuel economy corresponds to a 2% increase in average VMT. This rateappearedtodecreasesomewhatduringthe1990ssperhaps reflecting the decreased sensitivity of VMT to changes in fuel economy in periods of relatively high real income and low fuel costs (15).…”

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“…They report that, for personal automotive transport, in OECD countries, the mean value of the long-run direct rebound effect is likely to be less than 30% and may be closer to 10% for transport. Through examining motor vehicle transportation in the US, Small and Van Dender estimate the short and long-run rebound effect of 4.5% and 22.2%, respectively [24]. Barla et al present estimates of the rebound effect for the Canadian light-duty vehicle fleet.…”