Households That Buy Fuel-Efficient Cars Tend To Purchase Second, Larger Vehicle — Thereby Losing Most Fuel Economy Benefits

Households that purchase fuel-efficient cars tend to mostly undo their fuel economy benefits by purchasing a second and larger vehicle as compensation, according to a new analysis from researchers at the University of California—Davis, MIT, and Yale.

According to this analysis, this reality means that the goals of fuel economy standard policies are being “eroded” by up to 60%.

The basic idea behind the new analysis was to see what effect “attribute substitution” was having on the results of fuel economy standards — attribute substitution referring to the exchange of the attributes of one product with another (e.g., someone stops smoking, but takes up coffee consumption; or goes on a diet and stops eating burgers, but starts using meal-replacement drinks; etc.).

Here’s more from the study (via Green Car Congress): “A second implication is that attribute substitution may influence the efficiency or cost effectiveness of policies that influence the attributes of products, such as energy efficiency standards. Few papers have been able to empirically measure these forces. … Attribute substitution may manifest itself in a number of dimensions. For example, households may prefer to have one SUV and one sedan, or one powerful vehicle and one fuel-efficient vehicle. Identification in this case is challenging because households may also fall into certain household ‘types.’ Just as Anderson et al. (2015) and Mannering and Winston (1985) show that some households have a preference for a certain brand of vehicle, some households may also have a preference for certain attributes. In such instances, if households have a preference for, say, horsepower or fuel economy, the attribute will be present in high or low levels across all goods in the portfolio.”

What the research found was pretty unambiguous: increases in the fuel economy of a kept car relate to an increased probability that the household in question will purchase a car in the lowest fuel-economy quartile.

Continuing: “Attribute substitution erodes over 60% of the fuel savings from the fuel economy increase of the kept vehicle on net after accounting for all of these factors. As a specific example, consider a 10% increase in fuel economy from the average vehicle in our sample. Given the average miles driven (688 per vehicle in our sample), this 10% fuel economy increase would directly lead to a 69 gallon decrease in annual fuel consumption. However, due to attribute substitution, the next vehicle the household purchases will be less fuel efficient than it otherwise would have been. This decrease in fuel economy of the newly-purchased vehicle reduces the fuel savings from our thought experiment to 40 gallons, holding usage of the two vehicles constant. But we also find significant changes in usage patterns that further reduce the net fuel savings.

“Mileage of the kept car increases significantly. A large fraction of this increase is due to shifts in miles traveled from the now less fuel efficient purchased vehicle; however, we also find a net increase in overall mileage across the two-vehicle portfolio. Accounting for all of the changes, the net savings of the exogenous increase in fuel economy falls from the naive estimate of 68 gallons to 24 or 27 gallons, depending on whether the initial vehicle was the most fuel efficient vehicle in the household.”

So, the takeaway is that fuel economy standards probably aren’t nearly as effective as they are sometimes made out to be. That’s not to say that they should be removed — that would likely be extremely counterproductive from perspective of reducing greenhouse gas emissions — but it may be prudent to focus efforts elsewhere where there are possibly more effective results (public transit where possible, electric vehicle support perhaps, working from home, etc.).