Debunking The Fallacy Of The Prius Rebound Effect

Using the vehicle-level data on miles driven compiled from odometer readings, we show that Prius owners have the same vehicle miles travelled as the non-Prius owners. This finding and the estimate of associated energy rebound disproves the claims of the “Prius Fallacy” propagated by the staff writer of The New Yorker in his recently released book Conundrum.

by Shakeb Afsah and Kendyl Salcito, via CO2 Scorecard

There is a new term circulating to suggest that by choosing fuel-efficient and low-energy consumption technologies we actually end up increasing our energy use and CO2 emissions. The “Prius Fallacy” is now the catchphrase for the uselessness of energy efficiency that David Owen of The New Yorker has pitched in the pages of the Wall Street Journal and amplified as the central theme in his recent book Conundrum. Owen has disseminated his claims on the opinion pages of the New York Times, and the catchphrase has over 4,000 hits on Google within two months after its invention.

We have detailed the empirical flaws in Rebound repeatedly (see the links above) but have not directly tackled the metaphor itself.

The Prius Fallacy rests on two key assumptions: (1) that Prius drivers drive more because they are paying less in gas, and/or (2) that Prius drivers use money saved on fuel to purchase or participate in energy- & carbon-intensive goods and activities.

To address the first assumption we turned to the work of Professor Ken Gillingham of Yale University. Prof. Gillingham meticulously compiled a micro-dataset on personal automobiles for his doctoral research at Stanford. This dataset contains information on personal vehicle registration from automotive data supplier R.L. Polk and actual odometer readings reported by the California Bureau of Automotive Repair, who conduct emissions tests. At our request he matched Vehicle Identification Numbers (VINs) to compare the distribution of vehicle miles traveled (VMT) for a sample of 4,208 Prius owners and around 4.6 million other automobile drivers in California.

The result obliterates the Prius Fallacy’s first assumption. As shown in the comparative histogram in Exhibit-2, there is no difference in VMT by Prius owners and the rest of  California’s drivers. On average Prius owners drove 13,130 VMT/year compared to 13,064 VMT/year for non-Prius owners—a difference of a mere 0.5%. The similarity of the VMT profiles of Prius and non-Prius is confirmed statistically and visually in the overlapping kernel density plot shown in Exhibit-3 (see endnote on data and diagnostic regression). This finding is in line with the simple economic logic produced by Prof. Matthew Kahn of UCLA at the Christian Science Monitor.

When consumers switch from conventional cars to a fuel-efficient hybrid like a Prius which gives 45 miles to a gallon, there is a genuine reduction in the consumption of gasoline – up to 430 gallons per year for an owner who switches from an SUV—an 18-mile-a-gallon vehicle (based on average 13,000 VMT/year).

To understand the significance of 430 gallons (~10 barrels) consider that the US imported roughly 600,000 barrels of gasoline every day in March 2012 (EIA). If around 60,000 people replaced their cars with hybrids, we would eliminate a full day of gasoline import in the course of a single year. If 25 million people replaced their SUVs/trucks and other low mileage passenger cars with hybrids (from America’s ~200 million registered vehicles), we could eliminate gasoline imports entirely (given the import average for 2012 so far). As long as Prius drivers don’t become the world’s largest coal-consumers, it’s hard to see any catastrophic rebound here.

But what if Prius drivers do guzzle coal? This leads us to Owen’s second assumption: that money saved on fuel is spent on carbon-intensive purchases. The fact is, we don’t know how Prius drivers spend the $1500 they save on fuel each year (assuming $3.50/gallon gas prices). Some may hide it in mattresses (zero rebound), some may install solar panels (a case of negative rebound), some may use it for the down payment on a Land Rover (positive rebound). In the worst possible scenario, you can imagine a Prius owner spending all her $1500 to buy anthracite coal to grill burgers in her backyard. We haven’t found a study contrasting the purchasing habits of hybrid drivers and conventional car drivers; as such, we can only rely on the aggregate macroeconomic figures.

As Owen and others have pointed out, about 6-8 percent of the US GDP is spent on energy in a given year. This 6-8% share of the GDP accounts for the total energy we consume—including items like the direct gasoline we buy, the electricity we consume at home, and the indirect or embodied energy used in the production of our cars, dishwashers, etc. The 6-8% share accounts for our aggregate spending behavior—the dollars we directly and indirectly spend on energy consumption.

We expect that an average Prius owner will spend the extra money the same way they spend the rest of their money. In the worst case scenario, then, where 8 percent of a Prius driver’s $1500 fuel savings is spent on energy $120 ($1500*8%) is re-injected into the energy economy. But only 8.3% of the energy expenditure in the US economy is associated with coal—the fossil fuel of most concern (see data and statistical endnotes). Therefore $10 (8.3% of $120) or just 0.7% of the total fuel efficiency savings will rebound to generate CO2 emissions from coal.

Natural gas and petroleum account for 75.5% of energy expenditure in the US. This implies that around $91 ($120*75.5%) or 6% could rebound in the form of energy use from natural gas and petroleum. The total worst case scenario for indirect rebound associated with fossil fuel use adds up to 6.7% (0.7% + 6%).

Some rebound proponents have argued that dollar spent on energy has a two- or three-fold multiplier effect. It is hard to see how that is possible—if up to 8% of our GDP accounts for energy use, it already includes the energy component of the rest of the 92% of the GDP. Both direct and indirect energy use within the economy are included in the 8% share. Adding a two- or three-fold multiplier on top of that would lead to phantom accounting.

There is little in the way of a solid theory or verifiable empirical estimate that proves the existence of multiplier effect in this particular context. And even if we give the benefit of the doubt to the proponents of rebound and assume the existence of multiplier effect, the share of the $1500 savings will on average account for rebound worth $201 (13%) and $301 (20%) for two- and three-fold multipliers respectively.

So, at her worst, an average Prius driver is re-injecting $101-$301 of her $1500 savings into energy use from fossil fuel. And that’s near the worst-case scenario. If Prius drivers don’t drive more than conventional drivers, and if Prius drivers must (lacking evidence to the contrary) be considered among average American consumers, where’s the real fallacy?

Final Thoughts

We’ve written about other failed anecdotes in Owen’s Rebound reporting in the past, including the fallacy that efficient refrigerators have rebound effects – more people buy side-by-side fridges as cooling food gets cheaper. As shown in our earlier research note, rising sales of energy efficient refrigerators coincided with a 3.3% total energy consumption reduction between 2001 and 2005, even as 5.2% more households invested in more than two refrigerators.

Owen’s preference for narrative over fact is concerning, not just because he is informing Americans on key components of climate policy without researching the realities, but because as an established and respected staff writer at The New Yorker he is so well positioned to disseminate this simple and false storyline.

Data and Statistical Notes

A: Description of the vehicle-level dataset

  • Professor Ken Gillingham’s dataset on vehicle ownership and driving behavior is an example of micro-level datasets that are most appropriate for understanding the energy rebound effect at a high-resolution level. Prof. Gillingham compiled this composite vehicle-level dataset for his doctoral research that aimed to quantify the impact of the changes in gasoline prices on consumer behavior in terms of two key effects—how much consumers drive and what vehicles consumers choose to buy.
  • This dataset includes all new vehicle registrations in California from 2001-09 and all of the mandatory smog check program odometer readings for 2002-09. Including the information on demographics, prices, make, model and other variables, the full dataset has tens of millions of observations.
  • We focused on the subsample of Priuses for which there was a title change, and we observed the smog check odometer reading.  The analysis in this research brief compared the VMT of these Priuses first to all vehicles that had a title change and second to all vehicles. In both cases we found no evidence of the “Prius Fallacy”.
  • Additionally, a diagnostic simple regression check was conducted using a dummy for the Prius and controls for demographics, the gasoline price, and economic conditions. The calculation turned out a negative coefficient on the Prius—suggesting that Prius owners may actually drive less than others with similar wealth, location, etc.  This simple check was conducted only for assurance in the comparative histogram of VMTs shown in Exhibit-2.

B: Calculation of the ballpark estimate of energy expenditure by fossil fuel source (2009)

**Source: Annual Energy Review (AER) 2010, US Energy Information Agency (EIA)

**We are thankful to Jon Koomey for helping us crunch the estimates on energy expenditure.

C: Estimate of gallons saved when SUV driver switches to a Prius.

Shakeb Afsah is the President and CEO of the CO2 Scorecard Group and is a leading environmental reporting and disclosure specialist. Kendyl Salcito serves as the Policy Communications Specialist for the CO2 Scorecard initiative. This piece was originally published at the CO2 Scorecard website.

20 Responses to Debunking The Fallacy Of The Prius Rebound Effect

  1. rjs says:

    it may not be specifically true for a prius, but the jevons paradox is well known…the cheaper energy is, the more people consume…

  2. Don’t Prius owners spend most of the savings in energy costs paying for the higher initial cost of buying a Prius rather than a conventional car?

    The second fallacy – that people use their savings from energy efficiency to buy other energy-intensive goods – assumes that people do save money from energy efficiency. In many cases this is true. In other cases, as the Prius, it is not true: the cost of improving energy efficiency is as great as the savings in energy expenses. In these cases, there is clearly no rebound effect – unless 100% of the cost of improving energy efficiency is spent on energy.

  3. Jevons paradox is well known and often misunderstood.

    It applies only when demand for the product is relatively elastic. In most cases, demand is relatively inelastic: people are not going to drive twice as much because their car uses half as much gasoline per mile, and they are not going to heat their house to 90% because they have added insulation.

    See the wikipedia entry about Jevons paradox, which explains this elementary economic point.

  4. Leif says:

    The reason you have cheap ecocidal fossil fuel is because “We the People” are saddled with the environmental cost of the real damage to the commons. Price in a few mega-floods, acidified oceans, displaced populations and perhaps an failed wheat crop here and there and recalculate your “cheaper energy.”

  5. Zetetic says:

    If by it being “well known” you mean, often well know to be false except by those that what to discourage energy conservation you’d be correct.

    Energy Efficiency is for Real, Energy Rebound a Distraction

    Energy efficiency and the ‘rebound effect’

    Rebounds Gone Wild

    Some demands are ‘inelastic’ in both directions. In my opinion the so-called “Jevron’s Paradox” is just a convenient rationalization to encourage waste and inefficiency.

  6. It is well known but not practically important. In almost all cases it is a small effect, and there is little or no empirical evidence to indicate otherwise. Unfortunately, this misconception pops up periodically and needs to be revisited by those of us who have been studying these issues for a long time.

    Owen makes the classic mistake of mistaking the effects of economic growth for those of efficiency, but rebound only applies to the changes in energy use that are directly attributable to efficiency and efficiency alone. Larger houses, bigger cars, or other choices driven by technology trends and greater personal wealth are not the rebound effect, and it’s time for people like Owen to stop making this rookie mistake.

  7. Jon says:

    Well known True

  8. DaveE says:

    I keep seeing that the Prius gets 45mi/gal. We get about 50mi/gal on our Prius–higher in summer, lower in winter–we are currently at 49.96 mi/gal over 89000 miles–I expect we will go slightly above 50m/gal overall over this summer.

  9. Jon says:

    I see and should have anticipated that I can’t use that symbolic way of writing “does not equal” when HTML formatting is allowed. My bad.

  10. You are correct that it is the NET bill savings (present value of bills savings minus costs) that contributes to what I call the macroeconomic re-spending effect. There is also what I call the direct rebound effect, which is related to the change in the marginal cost of delivering energy services when efficiency technologies are installed. For details on these definitions, check out this post and the memo that can be downloaded there:

  11. Zetetic says:

    That’s what I get for trying to rush, sorry about the typos.

    Also what I should have typed was “well known to be false when applied to energy efficiency, by those that want to discourage…”.

  12. Calamity Jean says:

    I assume you meant “Well known does not equal True”.

  13. Brooks Bridges says:

    Pure baloney. I had the walls of my very leaky 1920 house filled with foam. We saw a 44% drop in heating fuel. We did NOT turn up our thermostat as a result; in fact we were able to run it LOWER because the house was more comfortable minus drafts and cold walls. Our energy savings let us spend money on items giving even more energy savings.

    Likewise, our A/C bill went down significantly. We did NOT set it at a cooler temperature – we were already setting to a temperature we thought comfortable.

    Similarly, the Empire State Building retrofits such as super efficient windows, resulted in a 38% decrease in energy use for the building. Again, people were more comfortable after the retrofits.

    One may be able to find isolated instances of “Jevon’s paradox” but for every one of those, there are a 100 more like mine and the Empire State Building.

  14. fj says:

    Maybe that’s why people are walking all over the place since they don’t have to pay anything for energy.

  15. fj says:

    And, maybe that’s why people would be riding bikes and all sorts of other net zero vehicles all over the place except that cars, trucks, and buses tend to maim and kill them.

  16. Rabid Doomsayer says:

    Expecting facts from the WSJ? Please, we know the narrative is more important than facts when it comes to energy discussions in the WSJ.

  17. Adam Aston says:

    Does anyone know if and where David Owen has responded to these critiques?

  18. fj says:

    Jevons and rebound is just more sham politics and misinformation like that GOP presidential candidate recommending sperm personhood as if we should be painting smiley faces on the little devils.

  19. Mark Shapiro says:

    The economics of energy efficiency are even a little better than the authors describe.

    Assuming a positive savings rate (which is how capital accumulates and thus is the heart of capitalism) part of any savings from efficiency is saved. This lowers the cost of capital (see “supply and demand, law of”), and, since both efficiency and renewables are capital intensive, efficiency further lowers the costs of both.

    In less technical terms, Jevon’s Paradox can kiss my clean energy savings.

  20. Steve Funk says:

    The odometer readings are all the more impressive when you consider that people who know they will put a lot of miles on their vehicle because of long commutes are more likely to choose a fuel-efficient vehicle.