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CAFE OR PRICE?: An Analysis of the Effects of Federal Fuel Economy Regulations and Gasoline Price on New Car MPG, 1978-89

David L. Greene

Year: 1990
Volume: Volume 11
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No3-2
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Abstract:
Following a tripling of world oil prices in 1973-74, the U.S. Congress passed the Energy Policy and Conservation Act of 1975 establishing mandatory fuel economy standards for automobiles and light trucks. Beginning at 18 MPG in 1978, the passenger car standards increased to 27.5 MPG by 1985. There has been considerable debate about the influence of the standards, as opposed to the gasoline price increases in 1973-74 and 1979-80, on new car fuel economy.



Vehicle Use and Fuel Economy: How Big is the "Rebound" Effect?

David L. Greene

Year: 1992
Volume: Volume 13
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-7
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Abstract:
By reducing the fuel costs of travel, motor vehicle efficiency, improvements tend to increase the demand for travel, thereby offsetting some of the energy-saving benefit of the efficiency improvement and creating a "rebound" effect. The key factor is the elasticity of vehicle travel with respect to fuel cost per mile. Past studies offer a wide range of estimates depending on model formulation and time period, with more recent analyses indicating that travel is insensitive to fuel costs and efficiency. This paper analyzes U.S. light-duty, vehicle miles travelled from 1966 89, examining a variety of statistical issuesthat bear on the size of the "rebound" effect, including error structure, functional form, and possible lagged effects. The results consistently confirm that the 'rebound" effect has been quite small, about 5 15%, or less; and that short-run (one year) adjustments accounted for essentially all of the change in travel due to fuel price and fuel economy changes. The findings imply that the energy savings of technical fuel economy improvements to cars and light trucks will be only slightly reduced by increased vehicle travel. They also imply that gasoline taxes would need to be very large in order to stimulate significant reductions in travel.



Fuel Economy Rebound Effect for U.S. Household Vehicles

David L. Greene, James R. Kahn and Robert C. Gibson

Year: 1999
Volume: Volume20
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No3-1
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Abstract:
This paper presents an econometric estimation of the "rebound effect" for household vehicle travel in the United States based on analysis of survey data collected by the Energy Information Administration (ELA) at approximately threeyear intervals over a 15-year period. The rebound effect measures the tendency to "take back" potential energy savings from fuel economy improvements as increased travel. Vehicle use models were estimated for one-, two-, three-, four-, and five-vehicle households. The results confirm recent estimates based on national or state-level data: a long-run "take back" of about 20 percent of potential energy savings. Consumer responses to changes in fuel economy or fuel price per gallon appear to be equal and opposite in sign. Recognizing the interdependencies among miles of travel, fuel economy and price is key to obtaining meaningful results.



Vehicle Manufacturer Technology Adoption and Pricing Strategies under Fuel Economy/Emissions Standards and Feebates

Changzheng Liu and David L. Greene

Year: 2014
Volume: Volume 35
Number: Number 3
DOI: 10.5547/01956574.35.3.4
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Abstract:
New post-2010 Corporate Average Fuel Economy (CAFE) standards and carbon dioxide (CO2) emissions standards have significantly increased the stringency of requirements for new light-duty vehicle fuel efficiency. This study investigates the role of technology adoption and pricing strategies in meeting the new standards, and the impact of possible feebate policies. The analysis simulates manufacturer decision making over the period (2011-2020) using a dynamic optimization model of the new vehicle market that maximizes social surplus while meeting the standards. Consumer surplus is determined from consumer demand, which is represented by a nested multinomial logit model, and the model is conservative in its assumptions on available technology. Results indicate that technology adoption will likely play a much larger role than pricing strategies in meeting the new standards (consistent with the intent of the policy). Feebates, when implemented along with the standards, can bring additional fuel economy improvement and emissions reduction, but the impact of feebates diminishes with the increasing stringency of the standards. Results also show that the impact of the policy on consumers could be relatively limited. In the long run the policy requires increasing up-front technology costs to consumers that outweigh the perceived benefit of fuel savings, and there is some loss in total new vehicle sales. However, the net effect is limited, and the full value of fuel savings to society is substantial. Results also show a small decrease in average vehicle footprint size, indicating that efficiency improvements are primarily distributed across all vehicle sizes, consistent with the intent of the policy. Keywords: CAFE, Emissions standards, Manufacturer pricing, Technology adoption





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