Vehicle Fuel-Economy and Air-Pollution Standards: A Literature Review of the Rebound Effect

White Paper, June 2018

First enacted in 1975, the US government's Corporate Average Fuel Economy (CAFE) standards have promoted cost-effective energy conservation by mandating that fleets of cars produced by vehicle manufacturers each year in the US meet certain minimum fuel-economy requirements. Since 2017, however, the National Highway Traffic Safety Administration (NHTSA) and US Environmental Protection Agency (EPA) have been reconsidering the CAFE standards for the model years 2022–2025, which were originally set in 2009.

An Analysis Group team led by Senior Advisor Susan Tierney and Principal Paul Hibbard developed a white paper addressing one of the factors likely to be part of the reassessment of CAFE standards – namely, estimates of how consumers change their driving patterns (i.e., driving more or fewer miles) when presented with cars and light trucks that get a greater (or lower) number of miles per gallon of fuel. This is known as the “rebound effect,” and it is a critical element in cost/benefit estimations of changes to vehicle efficiency standards.

In the white paper, Vehicle Fuel-Economy and Air-Pollution Standards: A Literature Review of the Rebound Effect, Dr. Tierney, Mr. Hibbard, and their Analysis Group coauthors reviewed the extensive literature on the rebound effect and concluded that studies using data from broad parts of the US and based on multiple years of data (e.g., time-series data) were most relevant to determining the rebound effect. Those analyses, the authors found, show that the rebound effect has been lessening over time as baseline fuel economy has improved. The studies also suggest that the rebound effect tends to decrease as income increases, because the cost of fuel becomes relatively less important to decisions about whether to drive or not; and that a consumer's vehicle miles traveled is less sensitive to changes in fuel economy than to changes in fuel prices. As a result, the authors determined that a 10-percent rebound effect, which up to now has been used by the different agencies to establish CAFÉ standards, was supported by the relevant literature.

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Tierney S, Hibbard P