If Someone Replaced Your Car with a Prius, Would You Drive More?

Source: Caranddriver.com

Most of us drive cars that are less fuel efficient than a Prius, but this is likely to change over the next decade as the new Corporate Average Fuel Economy (CAFE) standards are phased in. Regulators project that these new standards will increase the average fuel economy of new vehicles to 39 miles per gallon (MPG) by 2025, compared to 26 MPG in 2010. A new Prius C is rated at 46 MPG on the highway.

While the Clean Power Plan has been getting a lot of attention this past week, the new CAFE standards are another major component of the Obama Administration’s climate action plan. Increased vehicle fuel efficiency could account for nearly the same reductions in GHG emissions as the Clean Power Plan.

There is a lot of guesswork involved in coming up with the projected reductions in GHG’s achieved by the new CAFE regulations. Some of it involves estimating how much people will drive as they buy more fuel-efficient vehicles.

One factor is what’s known at the “rebound effect”: as cars get more fuel efficient, the price of driving a mile goes down. Economists project that a price reduction will lead people to consume more, which in this context means they will drive their fuel-efficient cars more. Regulators estimate that they will drive about 10% more.

I’m not sure this effect would hold in my family, though.

We rented a Prius one summer vacation in Maine. The back roads of Maine can be fun to drive, as they are built over the landscape and not through it, so they twist and turn over the rocky countryside. There’s an aptly named “thrill hill” near our vacation spot that leaves your stomach in your mouth better than most roller coasters.

A Prius in Maine?

A Prius in Maine?

My husband – who prides himself on being an “aggressive” driver – taught my kids some new adjectives to modify “engine” the summer we had the Prius. One was “lawn-mower” and the rest aren’t printable. Uncharacteristically in our family, he let me drive for some of the longer trips.

“Prius” has now become synonymous with “wimpy” in my household, as in, “Mom, why didn’t you pull out in front of that car? It’s a Prius.”

It’s not as though my husband goes out joyriding, but I would guess that if a Prius magically showed up to replace his higher horsepower car, there would be a couple instances each month where he would opt to carpool or ride his bike to work where he wouldn’t have otherwise.

Is this Monster Prius photoshopped?

Is this Monster Prius photoshopped?

A recent paper by Jeremy West, Mark Hoekstra, Jonathan Meer and Steve Puller (WHMP) suggests that my husband is not alone. It finds that higher fuel-efficiency cars similarly turn off other drivers. Counter to the predictions of the rebound effect, they find that drivers who were nudged into more fuel efficient cars by the Cash for Clunkers program end up driving if anything less than similar new-car owners who bought less efficient cars.

As WHMP point out, fuel efficiency is correlated with other vehicle attributes that drivers tend to dislike, including lower weight, which recent papers (see here and here) confirm is not good for occupants in an accident, and lower horsepower, which makes it harder to accelerate enough to get thrill-hill bumps.

As an aside, the authors use a clever empirical strategy to show that more fuel-efficient cars led people to drive less. The difficulty is that most people buy cars anticipating how much they are likely to drive. So, just looking at the raw correlation between the fuel efficiency of a new car and the number of miles it is subsequently driven may wildly over-state the rebound effect if people who know they have long commutes purposely buy fuel efficient cars.

WHMP look at Texans in the year following the Cash for Clunkers program, which gave large incentives to households that turned in a clunker – defined as a car that got less than 18 MPG – as long as they replaced it with something considerably more fuel efficient. WHMP compare two groups of new car purchasers – those who were barely eligible for the program because their old car was 18 MPG and those who barely missed being eligible because their old car was 19 MPG. The households with 18 MPG clunkers bought new cars that were more fuel efficient (plus smaller and less powerful), while the households who just missed being eligible did not get nudged into fuel-efficient cars, so they serve as a kind of control group. Other than the fact that one group is eligible for the program and the other isn’t, the two groups of households are very similar.

WHMP’s findings do not mean that the rebound effect is wrong – it’s just misapplied in this case. A pure rebound effect describes changes in the energy efficiency of a good, but leaves all other attributes unchanged.

Similarly, some people are quick to differentiate energy efficiency from energy conservation. Ideally, an energy efficiency investment leaves everything else unchanged, and simply reduces the energy consumed to perform a particular function, like driving a mile.

If WHMP’s result holds as the CAFE standards nudge more of us into fuel-efficient cars (at least given the current fleet), this will be good news for reducing greenhouse gas emissions. They don’t report an implied increase in savings, but, roughly, I would guess they’d be about 10% higher if the current estimates embed a 10% increase in driving.

While good news for the climate, this result is bad news for drivers like my husband who dislike driving less powerful cars. In econ-speak, there is lost welfare as people are pushed into cars they don’t like. That’s OK – solving the climate crisis is bound to involve some sacrifices, but we should aim to select regulations that minimize what people have to forego.

On this dimension, both CAFE and the Clean Power Plan are lacking. Both are examples of standards, which are a form of what’s known as “command and control” regulation. An ideal regulation would put a price on GHG emissions, either explicitly with a carbon tax or implicitly through a cap-and-trade program. Then, people and firms would make decisions appropriately embedding the damage they are imposing on the climate. (Note, however, that one compliance option under the Clean Power Plan is for states to join a cap-and-trade program.)

IMG_0067Regulation with standards may be the only device remaining in the Obama Administration’s climate tool chest given the political environment (e.g., the Senate’s failure to pass climate legislation in 2010), but the approach is necessarily worse. Figuring out how much worse is difficult, as WHMP’s paper points out. It involves estimating things like how people are driving in cars subject to the regulations and how much worse off they are. It’s important to keep these kinds of unintended consequences in mind, even if they hard to quantify.

About Catherine Wolfram

Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, Co-Director of the Energy Institute at Haas, and a Faculty Director of The E2e Project. Her research analyzes the impact of environmental regulation on energy markets and the effects of electricity industry privatization and restructuring around the world. She is currently implementing several randomized control trials to evaluate energy efficiency programs.
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13 Responses to If Someone Replaced Your Car with a Prius, Would You Drive More?

  1. Long-time readers know whose Prius that is in the final picture, but for those who don’t: https://energyathaas.wordpress.com/2013/07/08/bad-incentives-for-green-choices/

  2. JIm McMahon says:

    Two issues here. For high performance, low carbon vehicles, try electric. See, for example, Tesla’s “Insane Mode” http://www.roadandtrack.com/car-culture/entertainment/videos/a24870/tesla-model-s-p85d-insane-mode-makes-people-lose-their-minds/

    An electric vehicle set a new land speed record of over 200 mph last year. http://www.huffingtonpost.com/2014/09/19/electric-car-land-record_n_5849004.html

    Measuring rebound is tricky. In my two-car household, purchasing a 2002 Prius meant that we used the Prius for all long trips, and most trips together (even short local trips). So the annual mileage on the Prius was considerably higher (estimate 30%) than the previous year’s mileage on the car that it replaced. However, the second car in the household had a corresponding decrease in mileage driven. Household carbon footprint from driving (two cars) decreased about 30%.

    • Bill Marcus says:

      Same here. Had a 2002 Honda Civic and an aging 1995 Honda Accord, so we replaced the Accord with a 2007 Prius. The Accord was the second car, and the Civic got most of the miles. But we used to take the Accord on most of our 80 mile trips from the Central Valley to the Bay Area because the Accord was more comfortable, even if less 7 mpg fuel efficient than the Civic. We shifted those Bay Area trips from second car (Accord) to first car (Prius). The end result was that the Prius got extra miles relative to the original miles put on the Civic. And the Civic as second car got fewer miles than the Accord as second car because the Prius was more comfortable than the Civic and picked up long trips. And our driving habits probably didn’t change much, except either to bunch even more errands together in one trip or use the Civic for the very shortest of trips, because the Prius needed a couple of miles to warm up before it could use electricity for city driving.

  3. Kaybee says:

    Your husband might consider getting a Chevy Volt instead. It’s the fastest car I’ve ever driven, narrowly beating out the 2009 Jetta TDI. In Sport mode, my Volt can take just about any car on the road.

    Here’s an article written by someone that owns both a Volt and a Tesla. His conclusion is that the “fun-to-drive” factors are similar – and I doubt anyone would compare the Tesla to a lawn mower.
    http://www.greencarreports.com/news/1084138_tesla-model-s-vs-chevy-volt-owner-compares-electric-cars

  4. Azmat Malik says:

    “If Someone Replaced Your Car with a Prius, Would You Drive More?” … I would first report my car stolen!

    My experience with the Prius 2009 has been not-so-good. Not ‘fun to drive’. Poor quality experience: battery died at 120K miles [fortunately still under Calif extended warranty so replaced for ‘free’ — but which ‘battery heaven’ did the old battery go to]. It drives like a ‘mushroom’. My VW TDI gets about 42mpg on trips to SoCal, and is fun to drive. And the Prius price premium doesn’t even cover the cost of the gas saved relative to other similar class vehicles. I see the Prius as a ‘feel good’ car, but not helpful in overall resource conservation/ efficiency.

  5. Richard Wilk says:

    Your husband might try driving my 2014 BMW i3, which is all-electric. Its acceleration will snap your head back, pretty much the same as a Tesla, but much more comfortable to drive.

  6. Pierre duVair says:

    Important to note there remains a critical role for command-and-control measures in the policy makers’ toolbox. Setting minimum performance standards, in particular for energy/water/emissions intensive consumer durable goods, can achieve outcomes that using a price mechanism does not achieve. While US EPA provides a range of values for the social cost of carbon, most will acknowledge the degree of uncertainty in estimates of future anthropogenic climate-related damages. There is no single price for most externalities that an efficient market could settle upon. Minimum energy or water efficiency performance standards can set a technically and economically feasible floor for manufacturers, typically allowing flexibility in methods to achieve such performance. That flexibility includes choices on other product attributes desirable to consumers. Advantages accrue to manufacturers that meet the minimum performance standard, while enhancing other attributes through innovative methods of product design and production.

  7. John DeCicco says:

    Great article reporting on the nice West et al paper, which finally looks deeper than so many simplistic rebound effect studies over the years.

    Anyway, all good until descending into the predicable econ speak about how much better everything would be with a price on carbon. Measurable carbon cutting progress is always first-best better in the real world, even if not in the abstract world of economics, which lacks a predictive theory for innovation and social change.

  8. Paco D'Exponere says:

    It is fun to see the various promotions for Prius alternatives. Eco-nerds arguing about performance attributes of cars.

    As for rebound, while this entry mentioned the key distinction, it did so fleetingly. But the point warrants amplification. In order to truly evaluate the rebound effect, one must hold for all attributes aside from cost per mile. Back to a key challenge with comparative statics.

    Still, as a thought piece, one can imagine various scenarios influencing the final behavioral response. The author mentioned the driving experience (nebulous a concept as that may be). The author infers that her husband would likely drive less due to the Prius presenting a less desirable driving experience. This is an interesting point. But it seems that the means by which one were to become a Prius owner could be of influence. Specifically the idea of selection bias may be relevant.

    Consider this scenario:
    A Prius that was purchased may be purchased by someone with a particular environmental goal at play or someone who places greater value on the driving experience. Alternatively a Prius that was randomly gifted (manna from heaven) would likely fall to the possession of a driver matching a more average preference within the environmental space and the “driving experience” dimension (the author’s husband). One could expect that those who actively chose to purchase a Prius may already control their driving to a greater degree than the randomly selected Prius drivers, consistent with a greater focus on environmental burden. Alternatively, the manna from heaven Prius would arguably fall to the driveway of a driver more representative of the average. Thus the counter-intuitive conclusion from this admittedly tortured logic is that the more environmentally conscious Prius drivers may demonstrate a greater rebound effect than their less eco-sensitive fellow Prius owners. But there are so many dynamics here.

  9. mcubedecon says:

    Jim McMahon refers to the larger issue that needs to be addressed and I’m not sure was addressed in the West et al paper–that vehicle use is a decision made for the entire fleet of the household (yes, two cars are a “fleet.) A car also is a bundle of attributes, (which the car companies invented hedonic analysis in the 1940s to value each attribute separately for marketing purposes.) These aspects explain a large part of why EV advocates couldn’t understand why people weren’t storming in to buy cars that look on first blush like a great deal. The issue is that the prime competitor has been a 10 year old commuter car that a household rarely uses for other purposes, and you can buy a used one for $6,000. (I was recently shopping for a used car for my son.) In the case of the cash for clunkers, those households may have shifted much of their communal driving to a bigger gas guzzling car which is now more affordable with more disposable income. Looking at the single vehicle, there doesn’t appear to be any rebound, but on aggregate, rebound would appear in this case.

    The second important aspect is people typically don’t change their driving behavior too much in the short run and without changing their circumstances. But having a cheaper car to drive opens up the opportunities to either move abodes or jobs to locations that offer preferable attributes. It’s this type of change that drives rebound but it also occurs over a longer period.

  10. What puzzles me is how low the MPG figures in the US are. Yes, I know that US gallons are smaller than British gallons, but my perfectly ordinary petrol-fuelled Mazda 3 does a measured 46.5 mpg (equivalent to 39 mpg US), in mixed use on Britain’s congested roads. My suspicion is that (non-domestic?) manufacturers tune US vehicles differently than European versions given relative petrol prices and that they can therefore improve US fuel economy easily through re-tuning.

    • mcubedecon says:

      Tom and Ray from Car Talk explain your exact situation here:
      http://www.cartalk.com/blogs/tom-ray/mazda3-mpg-usa-vs-uk
      The UK model is 30% less powerful.

      • I accept one aspect of this explanation (that the US version has significantly higher bhp rating). The others are not relevant, since I converted to US gallons and I was talking about my own consumption (46.5mpg), not the quoted one, which is 55mpg and is unattainable in practice. But that means my point remains- the manufacturers could simply retune the US model to achieve the new target consumption. Effectively, they could collude (with Government backing) to reduce vehicle bhp.

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