Assessment of Fuel Economy Technologies for Medium and Heavy ...

Table 1
Historical and Recent Long-Run Elasticities With Respect to
Fuel Price
Calculated Long-Run Price Elasticities With
Respect to Fuel Price of: Elasticity 1966 to 2004 Elasticity 2000 to 2004
Vehicle Miles Traveled -0.210 -0.057
Fuel Intensity -0.193 -0.191
Fuel Consumption -0.363 -0.237
Rebound Effect (Percentage) 21.0% 5.7%
Source:
Small and Van Dender (2007). The values shown in this table are “long-run” elasticities – i.e., response
over a multi-year period after the price change. Long-run elasticities will be greater than the immediate
or short-term response since travelers are able to make more fundamental adjustments to their
activity patterns, such as changing residence or worksite locations or changing the number and types
of vehicles owned.
The findings imply, for example, that based on data from the 1966 to 2004 period, a 100 percent
increase in fuel price should lead to a 21 percent reduction in VMT and a 19 percent increase in
the fuel efficiency of vehicles, for an overall net decrease in fuel consumption of 36 percent. For
the more recent period of 2000 to 2004, the elasticity of VMT with regard to fuel price declined
substantially, such that a 100 percent increase in fuel price would lead to only a 6 percent long
term decline in VMT. Table 1 shows that historically, about half of the impact of a fuel price
increase would be on VMT reduction and the other half on fuel efficiency; but that in recent
years, the VMT response to price increases has become much lower – less than one-third the
magnitude of the fuel efficiency effect. Another recent review of elasticities by Sperling 27
suggests that elasticity values are higher, but also reaches a similar conclusion that elasticities
with respect to VMT have declined in recent years. Sperling found that long run elasticities of
fuel consumption with regard to fuel price “may be as low as -0.2.”
Converting Small and van Dender‘s fuel intensity elasticity, which is measured in response to
fuel prices, to an elasticity based on overall vehicle operating expenses, would imply about a two
to three times higher elasticity (since fuel cost represents only about one-half to one-third of total
operating costs, as discuss in Section (1)(ii)), or up to around two to three times -0.19 (about -0.4
to -0.6). Doing the same with the 1966-2004 VMT elasticity produces a similar result, which falls
at the lower end of the range identified previously through studies specific to truck traffic, and
about half the value selected above based on FHWA‘s report (-0.97).
Approach:
The question investigated here is what level of fuel tax would be required to reduce truck fuel
consumption by roughly 20 to 40 percent, the same range of benefits assumed in the scenarios
evaluated in Section (1)(ii). It is not known how well the elasticities reported by Small and Van
Dender represent responses for the commercial vehicle sector. However, if it is assumed that the
fuel intensity response is about the same magnitude as the VMT response, the previous analysis
of VMT response can be used as a basis for estimating the combined response, by answering the
question of what fuel price increase would be required to reduce VMT by 10 to 20 percent (and
27
Sperling, Dan, ―Consumer Response to Fuel Price Changes: Implications for Policy,‖ January 15, 2008.
- 17 -