Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect

TLDR

The study estimates the motor‑vehicle rebound effect—how improved fuel efficiency induces additional travel—using a pooled cross‑section of U.S. states from 1966 to 2001. The model controls for endogenous fuel‑efficiency changes, separates autocorrelation from lagged effects, incorporates fuel‑economy‑standard stringency, and lets the rebound vary with income, urbanization, and driving fuel costs.

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.