Estimating rebound effect for passenger cars and its effects on US policy regulations

Abstract

Policies regulating the fuel economy of passenger vehicles have been implemented by many nations around the world to mitigate greenhouse gas emissions and improve energy efficiency. Such policies lead to advancements in-vehicle technology and improved fuel efficiency which then reduce per-mile driving costs. This reduction in passenger vehicle driving cost may result in the rise of vehicle miles traveled, which is referred to as the rebound effect. This study aims at estimating the rebound effect and at covering the difference (if any) between the rebound effect and gasoline price elasticity to vehicle miles traveled. The analysis is based on the 2017 National Household Travel Survey. We estimate a rebound effect in the range of 20%-26%, with estimation consistent across Ordinary Least Square (OLS) and Instrumental Variable (IV) approach. Interestingly we observe an absence of rebound effect in vehicles up to three-year-old and a much smaller rebound effect in hybrid vehicles.