Do vehicle efficiency improvements lead to energy savings? The rebound effect in Great Britain

Abstract

Abstract Fuel efficiency improvements in vehicles reduce the cost of travel, which could stimulate drivers to travel further limiting energy savings. Estimates of this effect, known as the rebound effect, have varied widely, partly due to data constraints and a reliance upon highly aggregated government statistics. This paper instead uses a dataset of over 275 million vehicle roadworthiness tests. The high level of detail in our dataset can reveal, for the first time, how the response to changes in travel costs may differ across types of vehicles and socio-economic areas in Great Britain. We find that the rebound effect in Great Britain is just 4.6%, meaning efficiency improvements are unlikely to stimulate increased mileage in the short-run. We find that larger, less fuel efficient vehicles are more responsive to fuel price changes than smaller vehicles and that drivers in urban areas are more responsive to fuel price changes than drivers in rural areas. Our findings shed light on the effects that policies such as fuel taxation and fuel economy standards may have on vehicle mileage. This has implications for both CO2 emissions savings and social equity.