Common Tragedies

Thoughts on Environmental Economics

Rebound effect quote of the day

Posted by Evan Herrnstadt on April 21, 2008

As in, not mentioning the rebound effect. From an (gated, sorry) E&E News story about automakers calling for national CAFE standards:

The auto groups say the increase in corporate average fuel economy standards — to 35 miles per gallon by 2020 — mandated by last year’s energy bill would effectively reduce emissions. ‘Burning fuel produces carbon dioxide, so higher mileage for vehicles means lower emissions,’ said Dave McCurdy, president of the Alliance of Automobile Manufacturers.

As has been discussed in the economics world for a while now, driving a car that gets higher gas mileage makes driving less expensive on a per mile basis. As we know from that handy law of demand, when the price of a good drops, people demand more of it. Though the rebound effect would not eat away the entire benefit of a CAFE standard, it’s certainly worth a mention, and makes Mr. McCurdy’s point less cut-and-dry than he makes it out to be. A hypothetical increase from 20 to 40 MPG on average, for instance, will not cut automobile carbon emissions in half.

Paul Portney, Ian Parry, Howard Gruenspecht, and Winston Harrington wrote an RFF Discussion Paper on CAFE standards that was eventually published in the Journal of Economic Perspectives. Section 3.2 gives a brief survey of empirical estimates of the rebound effect. It suggests that the effect nullifies about 10-20% of the raw gas mileage improvement.

3 Responses to “Rebound effect quote of the day”

  1. kegill said

    Ummm … you’re not suggesting that commuters would want to *double* their commute because mileage doubles — but you are suggesting that the increased mileage would cause people to drive more. How much more?

    This argument ignores the variable called “time” — which for most people isn’t very discretionary any more. All things being equal, I would not drive further to work because my mileage increased. I’d pocket the difference and be grateful (if I had no other convenient alternative — which is the case in most American cities).

    Since gasoline prices are increasing at a far more rapid rate than CAFE standards, the argument is pretty hypothetical.

    One problem with the current pricing model is that we (the commuters/drivers) don’t have to pay the non-point pollution costs and other externalities associated with driving — which includes air pollution, road crap than runs off as NPS pollution, wear-and-tear on the roads and bridges (the road tax/gallon is a surrogate, however), and congestion (time).

  2. rdjonsson said

    We studied this using a transport model of Stockholm, and found a rebound effect of around 10 percent when halving the fuel consumption, or put differently, a tenth of the positive effects of halving fuel consumption is lost due to increased demand. Note that this is not necessarily by increasing the commute. Demand for other trips may be much more elastic.

    This study only partly considers the time constraint mentioned above. Time is valued separately from monetary cost in the model, but not varying with how close to your constraint you are. We’ll have to revisit the problem when we have developed better models…🙂

    The paper:
    Robèrt, Markus, and R. Daniel Jonsson. 2006. Assessment of Transport Policies Toward Future Emission Targets. Journal of Environmental Assessment Policy and Management 8, no. 4:451–478.

  3. Evan Herrnstadt said

    In regard to the other externalities, I was mostly referring to McCurdy’s comments on carbon emissions. However, I do agree fully that we need some form of congestion or road-use pricing. The impacts of related externalities vis-a-vis the rebound effect are discussed on pages 9-10 of the linked paper:

    “let’s assume a rebound effect of 15% and onroad fuel efficiency of 20 miles per gallon. A “back-of-the-envelope” calculation would be that the rebound effect results in added congestion and accident externalities of 19.5 cents for each gallon of mandated fuel economy improvement (= 6.5 x 0.15 x 20), or perhaps 95% of the carbon and oil dependency benefits.”

    This result is based on specific parameter assumptions, but it reflects another potential negative impact of CAFE standards via the rebound effect. In fact, the authors state in a footnote that these impacts would be blunted by congestion charges and real-time insurance reform.

    And thanks to Mr. Jonsson for some insight into more current research on the subject.

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