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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.



Another Look at U.S. Passenger Vehicle Use and the 'Rebound' Effect from Improved Fuel Efficiency

Clifton T Jones

Year: 1993
Volume: Volume14
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No4-6
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Abstract:
Recently, Greene (1992) analyzed vehicle miles travelled for U.S. passenger vehicles over 1966-89 to econometrically estimate the "rebound" effect in fuel consumption resulting from improved fuel efficiency. He found that a static AR(1) model could not be rejected, implying that the rebound effect is small (13%) with no significant long-run adjustments, regardless of the assumed functional form(linear or loglinear). Another look at the data from a different model selection approach shows that while a loglinear AR(1) model is acceptable, the linear version is not. Using either form, a lagged dependent variable model cannot be rejected on statistical grounds yet has insignificant GNP effects, yielding similarly small short-run rebound effects but significant long-run rebound effects of about 30%. Thus, the evidence from these competing models for a significant long-run adjustment process is mixed, so that its presence cannot be completely ruled out.



Three Biases in Cost-Efficiency Tests of Utility Energy Efficiency Programs

Steven Braithwait and Douglas Caves

Year: 1994
Volume: Volume15
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No1-6
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Abstract:
Electric utilities in a number of American states devote significant portions of their resources to demand-side management (DSM) programs designed to reduce their customers' electricity consumption. As other jurisdictions consider similar programs, the public policy cost-efficiency criteria for determining how much utilities should pay for DSM remain controversial. This paper develops the appropriate measure of the economic benefits and costs of DSM, using a conventional economic welfare framework, and compares it to the standard cost-effectiveness tests used in most jurisdictions today. The standard tests are found to be incomplete, suffering from three potential biases. Modifications to the standard tests are suggested to address each of the biases. A numerical example is used to illustrate the nature and potential magnitude of the bias in the current tests.



The Economics of Conserved-Energy "Supply" Curves

Steven E. Stoft

Year: 1995
Volume: Volume16
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-5
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Abstract:
This paper develops the theoretical underpinnings of conservation "supply" curves (CSCs), and in doing so uncovers several problems with current procedures for their construction. The CSC is shown to be derivable from a production isoquant, and not to be a true supply curve. The traditional algorithm for constructing a CSC from discrete measures is shown to be suboptimal, contrary to prior claims. Omitting conservation measures from consideration can lead to systematic, excessive conservation. The CSC concept is extended from, constant-service to constant-utility measures, and an improved approximation is, suggested for the cost of conserved energy (CCE) of measures that cause rebound. The appendix provides a formula for CCE that is simple yet more general than the one currently in use, but shows that even with this, generalization, CSCs cannot be constructed for a world with fluctuating energy prices.



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.



Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect

Kenneth A. Small and Kurt Van Dender

Year: 2007
Volume: Volume 28
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No1-2
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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.



Should Automobile Fuel Economy Standards be Tightened?

Carolyn Fischer, Winston Harrington and Ian W.H. Parry

Year: 2007
Volume: Volume 28
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No4-1
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Abstract:
This paper develops analytical and numerical models to explain and estimate the welfare effects of raising Corporate Average Fuel Economy (CAFE) standards for new passenger vehicles. The analysis encompasses a wide range of scenarios concerning consumers valuation of fuel economy and the full economic costs of adopting fuel-saving technologies. It also accounts for, and improves estimates of, CAFE's impact on externalities from local and global pollution, oil dependence, traffic congestion and accidents. The bottom line is that it is difficult to make an airtight case either for or against tightening CAFE on pure efficiency grounds, as the magnitude and direction of the welfare change varies across different, plausible scenarios.



Identifying the Rebound: Evidence from a German Household Panel

Manuel Frondel, Jorg Peters, and Colin Vance

Year: 2008
Volume: Volume 29
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No4-7
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Abstract:
Using a panel of household travel diary data collected in Germany between 1997 and 2005, this study assesses the effectiveness of fuel efficiency improvements by estimating the rebound effect, which measures the extent to which higher efficiency causes additional travel. Following a theoretical discussion outlining three alternative definitions of the rebound effect, the econometric analysis generates corresponding estimates using panel methods to control for the effects of unobservables that could otherwise produce spurious results. Our results, which range between 57% and 67%, indicate a rebound that is substantially larger than obtained in other studies, calling into question the efficacy of policies targeted at reducing energy consumption via technological efficiency.



Free Riding, Upsizing, and Energy Efficiency Incentives in Maryland Homes

Anna Alberini, Will Gans, and Charles Towe

Year: 2016
Volume: Volume 37
Number: Number 1
DOI: 10.5547/01956574.37.1.aalb
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Abstract:
We use a unique dataset that combines an original survey of households, information about the structural characteristics of their homes, utility-provided electricity usage records and program participation status, to study the uptake of energy efficiency incentives and their effect on residential electricity consumption. Attention is restricted to homes where heating and cooling is provided exclusively by air-source heat pumps. We deploy a difference-in-difference study design and find that replacing a heat pump with a new one does reduce electricity usage by 8% on average. The effect differs dramatically across households based upon whether they receive an incentive towards the purchase of a new heat pump. Among incentive recipients, the effect is small, and the larger the incentive, the smaller the reduction in electricity usage. These findings suggest that capital costs are incorporated into the (long-term) cost of energy, generating an apparent rebound effect that is much more pronounced for incentive recipients.



A Top-Down Economic Efficiency Analysis of U.S. Household Energy Consumption

J. Wesley Burnett and Jessica Madariaga

Year: 2018
Volume: Volume 39
Number: Number 4
DOI: 10.5547/01956574.39.4.jbur
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Abstract:
This study analyzes the efficiency of household-level energy consumption using a rich microdata set of homes within the United States. We measure efficiency by extending a cost-minimization model that treats the total amount of energy services produced as latent or unobserved due to technological differences in household consumption. The empirical strategy consists of applying latent class modeling to cost frontier analysis, which helps to identify heterogeneous subsets of units that require the fewest energy resources. Our estimates of efficient units form an empirical cost frontier of best practices within each subset. In order to understand the determinants of household-level energy efficiency, we condition the cost frontier analysis on numerous physical, climate-related, and socio-economic characteristics of the household. We find that state-level energy building code regulations, on average, induce a one-to-four percent marginal increase in household energy consumption.




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