By CARL BIALIK
When President Barack Obama announced tougher fuel-efficiency standards for new cars last week, he emphasized the potential reduction in oil demand. But what if drivers who find that they can go longer on a tank of gas drive more? Would all that additional driving cancel out the environmental benefits the Obama administration is seeking?
Most economists who have studied this so-called rebound effect say the answer is no, though they differ somewhat on how much of the gasoline savings would be burnt up by an increase in driving. The Environmental Protection Agency is predicting a rebound effect of 5%. That means that drivers who trade in a 20-mpg sedan for a 25-mpg model will partially offset the fuel savings by, on average, driving 1% more.
Just two months earlier, the National Highway Traffic Safety Administration estimated that the rebound effect would be 15%. While the 5% figure yields a more impressive fuel-savings projection -- 1.8 billion barrels of oil -- than the larger rebound effect would have, it also reflects the latest research, which suggests the rebound effect is dropping. That's because Americans' income is expected to rise faster than gas prices, making the time spent in a car loom larger in economic decisions than the cost of fuel.
The debate over the rebound effect is just one of the numerical complexities surrounding the new rules. The requirement that vehicles reach a fuel efficiency of 35.5 miles per gallon by 2016 covers cars sold in that year; there is no way to know what the mix of cars on the road will be then. And the new requirements are expected to boost new vehicle prices, which could keep drivers in gas guzzlers longer.
The EPA has yet to say how it arrived at a projected savings of 1.8 billion barrels of oil under the new mileage rules.
But some scientists who have studied the issue recently say the EPA's 5% figure is largely consistent with their findings. Kenneth Small, an economist at the University of California, Irvine, and Kurt Van Dender, an economist for the Organization for Economic Co-Operation and Development, examined gasoline prices, fuel efficiency and miles driven, by state, from 1966 to 2001.
Unlike most previous studies, their work didn't assume the rebound effect was constant. And they found it dropped sharply in the last decade, perhaps because rising incomes and increases in traffic reduced drivers' appetite to spend time on the road.
Based on government projections of gasoline prices and income, the Small-Van Dender model predicts a minuscule rebound effect, possibly even less than 5%, by the time the cars affected by the proposed Obama rules go on sale.
David Greene, a senior scientist at Oak Ridge National Laboratory, has studied the rebound effect for the EPA using federal data, and his work, so far unpublished, largely corroborates the Small-Van Dender study. "Somewhere between 5% and 10% for the future, assuming continued income growth, is probably where we are," Dr. Greene says.
It is hard to know just what rebound effect to expect from the new rules. Surveys asking drivers how they have behaved and will behave have produced wide-ranging results, which isn't surprising given the difficulties individuals have recalling and predicting their economic life. And no one has conducted a study tracking individual drivers over many years.
Also, drivers' reactions to fuel costs include small, short-term effects, such as skipping a road trip because of high gasoline prices, and long-term decisions, such as choosing a job with a longer commute because of greater fuel efficiency. And separating the two effects is difficult.
Dr. Small and Dr. Greene initially assumed that drivers would have the same reaction to cost savings from lower gasoline prices as they do from better fuel economy. But when they put that theory to the test, they found no evidence of a rebound effect tied to fuel-economy gains. That could just mean they need more data. If there really is no rebound effect, however, that would lead to even more oil savings than what the Obama administration is forecasting.
Why might drivers react differently to fuel efficiency than to gas prices? Perhaps because the uncertainty of gasoline prices, and the constant roadside reminders, elicit stronger reactions in drivers than fuel efficiency gained or lost.
Dr. Greene has another theory. As Mr. Obama acknowledged, cars get more expensive when their manufacturers must meet tougher standards. "Maybe what we're seeing," says Dr. Greene, "is that the increased cost of vehicles has compensated for higher fuel economy."
Write to Carl Bialik at numbersguy@wsj.com
The EPA has yet to say how it arrived at a projected savings of 1.8 billion barrels of oil under the new mileage rules.
But some scientists who have studied the issue recently say the EPA's 5% figure is largely consistent with their findings. Kenneth Small, an economist at the University of California, Irvine, and Kurt Van Dender, an economist for the Organization for Economic Co-Operation and Development, examined gasoline prices, fuel efficiency and miles driven, by state, from 1966 to 2001.
Unlike most previous studies, their work didn't assume the rebound effect was constant. And they found it dropped sharply in the last decade, perhaps because rising incomes and increases in traffic reduced drivers' appetite to spend time on the road.
Based on government projections of gasoline prices and income, the Small-Van Dender model predicts a minuscule rebound effect, possibly even less than 5%, by the time the cars affected by the proposed Obama rules go on sale.
David Greene, a senior scientist at Oak Ridge National Laboratory, has studied the rebound effect for the EPA using federal data, and his work, so far unpublished, largely corroborates the Small-Van Dender study. "Somewhere between 5% and 10% for the future, assuming continued income growth, is probably where we are," Dr. Greene says.
It is hard to know just what rebound effect to expect from the new rules. Surveys asking drivers how they have behaved and will behave have produced wide-ranging results, which isn't surprising given the difficulties individuals have recalling and predicting their economic life. And no one has conducted a study tracking individual drivers over many years.
Also, drivers' reactions to fuel costs include small, short-term effects, such as skipping a road trip because of high gasoline prices, and long-term decisions, such as choosing a job with a longer commute because of greater fuel efficiency. And separating the two effects is difficult.
Dr. Small and Dr. Greene initially assumed that drivers would have the same reaction to cost savings from lower gasoline prices as they do from better fuel economy. But when they put that theory to the test, they found no evidence of a rebound effect tied to fuel-economy gains. That could just mean they need more data. If there really is no rebound effect, however, that would lead to even more oil savings than what the Obama administration is forecasting.
Why might drivers react differently to fuel efficiency than to gas prices? Perhaps because the uncertainty of gasoline prices, and the constant roadside reminders, elicit stronger reactions in drivers than fuel efficiency gained or lost.
Dr. Greene has another theory. As Mr. Obama acknowledged, cars get more expensive when their manufacturers must meet tougher standards. "Maybe what we're seeing," says Dr. Greene, "is that the increased cost of vehicles has compensated for higher fuel economy."
Write to Carl Bialik at numbersguy@wsj.com
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