Governors' Biofuels Coalition

Households that buy fuel-efficient cars are more likely to purchase a bigger car as their second vehicle, according to a California state-funded study.

The research finds that fuel economy ratings may have the unintended consequence of enabling households to lower their standards for their second car, resulting in lower overall fuel savings.

The paper, funded by the California Air Resources Board, examined all residential California vehicle registration records from 2001 to 2007, using confidential state data to match the vehicles with each household and a vehicle identification number decoder to figure out their U.S. EPA fuel economy ratings. Biannual smog checks allowed the economists to calculate how many miles each vehicle had traveled.

The researchers found that in two-car households that had replaced one of their cars, the overall household savings of buying a more efficient vehicle is 24.4 to 27.3 gallons of gasoline per year. That’s compared to 68.8 gallons, as would be calculated based only on the more-efficient vehicle.

“Increasing the fuel economy of the kept car induces households to demand less fuel economy in the purchased car,” the paper says. “These results are quite startling and may have unfortunate implications for the effectiveness of policies that explicitly regulate fuel economy, especially if such policies are short term in nature.”

It identifies the “Cash for Clunkers” federal rebate program in the 2009 economic stimulus package, which offered incentives to turn in fuel-guzzling cars, as a prime example of a policy that may have prompted consumers to make less-efficient choices in the future. Up to 60 percent of the initial fuel economy savings may have been lost through subsequent purchases and driving habits, the paper estimates.

“Unintended consequences like this need to be taken into account when making policy,” said David Rapson, a co-author of the study and an associate economics professor at the University of California, Davis. “On average, fuel economy standards are putting more fuel-efficient cars in households. That can be good if it reduces gasoline use. But if it causes people to buy a bigger, less fuel-efficient second car to compensate, this unintended effect will erode the intended goals of the policy.”

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