Consumer Responses to Fuel
Economy/GHG Standards
Christopher R. Knittel
William Barton Rogers Professor of Energy Economics, Sloan School of
Management, MIT
Director, Center for Energy and Environmental Policy Research, MIT
Faculty Director, The E2e Project, MIT and UC Berkeley
Research Associate, National Bureau of Economic Research
My starting point
•
Goal of the midterm review would seem to be to
understand:
•
•
•
•
1. Were benefits over/understated?
2. Were costs over/understated (including design costs)?
3. Adjust program accordingly
Topics I’ll discuss
•
•
Consumers’ valuation for fuel economy
•
This cost turns out to be a benefit
Potential for “within household” rebound
•
Might reduce the environmental benefits
Costs and benefits
Breakdown of Costs and Benefits of CAFE, MY 2017-2025 (in 2010 $M)
Societal Effect
Lifetime Fuel Expenditures (Pretax)
Undiscounted Value
Sum of Present Discounted
Values @ 3%
Sum of Present Discounted
Values @ 7%
$577,260
$459,059
$358,200
Consumer Surplus from Additional Driving
$53,178
$42,264
$32,988
Refueling Time Value
$17,088
$13,769
$10,869
Petroleum Market Externalities
$29,626
$23,816
$18,776
Maintenance Costs
($5,204)
($5,204)
($3,877)
Congestion Costs
($22,347)
($17,964)
($14,166)
Accident Costs
($10,492)
($8,425)
($6,639)
($416)
($334)
($263)
$52
$20
$5
($91)
($91)
($40)
$59,625
$46,881
$46,881
$0
$0
$0
VOC
$674
$550
$440
NOX
$1,280
$1,072
$880
PM
$8,387
$6,839
$5,467
SOX
$7,070
$5,682
$4,478
Total
$715,690
$567,933
$454,001
Noise Costs
Value of Reduced Fatalities
Relative Value Loss (EVs)
CO2
CO
Source: NHTSA, US Dept. Of Transportation,
Table X-7
Implications
•
•
•
80% of the benefits come from consumers/firms making
private “mistakes”
•
This is not the standard environmental policy
What might be causing this?
•
•
•
•
•
Consumer myopia
Firms believing consumers are myopic
Information asymmetries (need not be a market failure)
Market power associated with new technologies
Credit market failures
Can tell alternative stories where these benefits don’t
exist (to this degree)
•
Focus of the midterm review should be on whether these
savings are being realized
Growing literature on consumer myopia
•
•
Famous Hausman (1979) paper
•
•
Home air conditioners
Implied discount rates of
A number of recent papers on automobiles
•
Sallee, West, and Fan (2009), Allcott and Wozny (2012),
Busse, Knittel, and Zettelmeyer (2013), and others (See
meta-study by David Greene)
Busse, Knittel, and Zettelmeyer (AER, 2013)
Market
NHTSA VMT
VMT from Used Car Transactions
VMT from Tradeins
Assumed Demand Elasticity
NHTSA Survival Rates
NHTSA Survival Rates
NHTSA Survival Rates
Q1 vs. Q4
Used
NA
11.8%
4.4%
7.3%
Q1 vs. Q4
New
2
-3.3%
-6.3%
-5.6%
Q1 vs. Q4
New
3
1.9%
-2.3%
-1.1%
Q1 vs. Q4
New
4
6.6%
1.3%
3.0%
Q1 vs. Q4
New
5
11.1%
4.7%
7.0%
Q1 vs. Q3
Used
NA
5.9%
0.1%
1.9%
Q1 vs. Q3
New
2
-3.0%
-6.0%
-5.3%
Q1 vs. Q3
New
3
2.4%
-1.9%
-0.7%
Q1 vs. Q3
New
4
7.2%
1.8%
3.6%
Q1 vs. Q3
New
5
11.9%
5.3%
7.6%
Q2 vs. Q4
Used
NA
20.9%
11.0%
16.2%
Q2 vs. Q4
New
2
1.1%
-2.9%
-1.8%
Q2 vs. Q4
New
3
7.9%
2.3%
4.1%
Q2 vs. Q4
New
4
14.2%
7.0%
9.6%
Q2 vs. Q4
New
5
20.3%
11.4%
14.8%
Notes: Goldberg (1995) reports average demand elasticities by segments. They are:
Subcompacts, 3.5; Compacts, 3.7; Intermediate, 4.7; Luxury, 1.91; Sports, 2.53; Pickups, 3.53; Vans, 3.03.
•
Other papers suggest the potential for modest
myopia
•
I’ll let these authors correct me, however
More research is needed…
•
Hunt Allcott and I have an on-going experiment with
Ford
•
•
•
Have Research Assistants armed with an iPad app
related to fuel economy stationed at six Ford dealerships
across the country
Consumers put into control or treatment group
Also, “hitting” consumers earlier on in buying process via
an online survey company
Equally important
•
•
We need to know consumers’ cost of capital to make
inference about myopia
For discussion purposes:
Histogram of APRs paid, All
High income, high credit scores
From a panel of ~4000 HHs. Conditional on having CC debt (~60-70% of US)
See, Stango and Zinman. “Borrowing High vs. Borrowing Higher” NBER WP 19069.
0
.05
Density
.1
.15
Cost of capital for automobile buyers
0
10
20
APR
New
30
Used
40
Something to think about:
Evidence of within household shift in miles
One more potential discussion topic
•
•
What are the prospects for CNG in the light duty sector?
Private CNG refueling station company planning five
stations in the Boston area next year
•
•
•
That will bring the count to 11!
Tailpipe emissions reduced by ~25 percent
•
•
(Fugitive emissions an important topic)
Depending on your geographic location, CNG can be better
than EVs
How should geographic variation in lifecycle emissions
be taken into account within CAFE?
Relevant papers
•
•
•
•
•
•
•
•
•
Bastani and Knittel. “Distribution of the Distributional Welfare: Gasoline Taxes and CAFE
Standards under Uncertainty,” Working Paper.
Bastani and Knittel. “Is Technology King? Technological Progress and Barriers to Adoption in
the Automobile Industry,” Work in Progress.
Knittel and Sandler. “The Welfare Impact of Second Best Uniform-Pigouvian Taxation:
Evidence from Transportation,” Working Paper.
Blonigen, Knittel, and Soderbery. "Keeping it Fresh: Strategic Product Redesigns and Welfare,”
Working Paper. Paper in PDF Format.
Knittel and Sandler. "Cleaning the Bathwater with the Baby: The Health Co-Benefits of Carbon
Pricing in Transportation,” Paper in PDF Format.
Busse, Knittel, and Zettelmeyer. "Are Consumers Myopic? Evidence from New and Used Car
Purchases,” The American Economic Review, 103(1), February 2013. Paper in PDF Format.
Knittel. "Leveling the Playing Field for Natural Gas in Transportation." Hamilton Project
Discussion Paper. Paper in PDF Format. Policy Brief.
Knittel. "Reducing Petroleum Consumption from Transportation," Journal of Economic
Perspectives, 26(1), Winter 2012, pp. 93-118. Paper in PDF Format.
Knittel. "Automobiles on Steroids: Product Attribute Trade-offs and Technological Progress in
the Automobile Sector,” Paper in PDF Format. The American Economic Review, 101(7),
December 2011, pp. 3368-3399.