Working Paper

Fuel Costs, Economic Activity, and the Rebound Effect for Heavy-Duty Trucks

Sep 30, 2015 | Benjamin Leard, Joshua Linn, Virginia McConnell, William Raich

Summary

Fuel economy regulations lower the cost of driving and can result in more miles traveled—what is known as the rebound effect. We estimate the magnitude of the rebound effect expected from new fuel economy regulations on medium- and heavy-duty trucks.

Key Findings

  • The estimated rebound effect is substantially larger for tractor trailers than the estimate used by the agencies regulating the fuel economy and greenhouse gas (GHG) emissions rates of trucks in the United States.
  • The agencies (the National Highway Traffic Safety Administration and US Environmental Protection Agency) may therefore be overestimating the projected fuel savings and GHG emissions reductions from the proposed new standards.
  • We estimate that vehicle miles traveled responds less to changes in economic activity than assumed by the agencies. This is also likely to lower the net benefits from the regulations.
  • Significant substitution effects exist between fuel efficient and fuel inefficient trucks, which we speculate will have important short-run implications for diesel consumption.
  • To mitigate the potentially large social welfare losses (e.g., traffic congestion and accidents) associated with the rebound effect, complementary policies should be considered—including increased taxes on diesel fuel.

Abstract

Economic theory suggests that fuel economy standards induce a rebound effect, which is the increase in energy use caused by lower per-mile fuel costs due to the regulation. Despite a large literature on this effect for passenger vehicles, few studies attempt to estimate the rebound effect for heavy-duty trucks. We estimate the magnitude of the rebound effect for medium- and heavy-duty vehicles using a pooled cross section of detailed truck-level microdata that spans 25 years. Our estimates imply an average rebound effect of 30 percent for tractor trailers and 10 percent for vocational vehicles. We also estimate the effect of economic activity on truck miles driven and find that both tractor trailers and vocational vehicles respond less than proportionally to economic activity; we estimate an aggregate truck miles elasticity with respect to gross state product of 60 percent for tractor trailers and 82 percent for vocational vehicles. These estimates taken together suggest that the agencies regulating US trucks likely overestimate projected long-run fuel savings and greenhouse gas emissions reductions resulting from the standards.