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Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect

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, 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. With income and starting fuel efficiency at 1997-2001 levels and fuel prices 58 percent higher, the estimates are still only 3.1% and 15.3%, respectively.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q54 - Climate; Natural Disasters and Their Management; Global Warming
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts
F44 - International Business Cycles

Keywords: Carbon dioxide, Fuel economy, travel demand, motor vehicle use, rebound effect, US

DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No1-2


Published in Volume 28, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.