Marginal Futility?

Yesterday, mega-pundit Dave Roberts over at Grist Magazine's blog put up a depressing little post on the Toyota Prius.  Basically, Dave seconds a claim made by the Wall Street Journal's editorial staff-- namely, that every drop of oil saved by eco-conscious Prius drivers simply gets snapped up by someone else, either in the US or overseas. 

Now, if that's really true, then all of the Prius drivers who think they're "saving" oil--or preventing climate-warming emissions--really aren't doing anything of the sort.

A sobering thought indeed.  But as it happens, I think this analysis is incorrect.  It may be that buying a Prius doesn't save as much oil as we'd like.  But I don't believe that it's simply an exercise in futility.

The Wall Street Journal does have a point, after a fashion.  The resource economics literature is chock full of reference to the so-called "rebound effect" -- which is the observation that efficiency gains (such as the rise of the Prius) are all too often undermined by rising appetites.

Here's one example of a rebound: if you buy a more efficient furnace, your heating costs fall -- but lower costs might also prompt you to turn up the heat a degree or two.  And that extra degree or two is the "rebound" that reduces the efficiency benefits from your new furnace.  On net, you still save on your heating bills, but you don't save quite as much as you might have predicted, based on the relative efficiencies of the two furnaces.

Just so, if you buy a fuel-efficient car, you might be tempted to drive an extra mile or two here and there -- which means that your gas savings are a little less than your mpg improvement.  (This earlier post argues that rising fuel efficiency standards would save fuel, but possibly backfire by inducing lots of extra driving.)

At the level of a market economy, rebound effects can be just as pernicious.  If enough people buy efficient hybrid cars, then aggregate gasoline demand falls enough to cause prices to drop.  But lower gas prices, in turn, spur extra consumption -- so other drivers use a little bit more than they otherwise would have. The system-wide benefits are a little lower than the Prius buyers might have hoped.

(On the converse, gas guzzling SUV's probably waste a little less gas than we think.  SUV drivers probably don't drive quite as far, on balance, as they would if their vehicles were more efficient; and high demand from SUVs raises gas prices, which probably holds down consumption a bit elsewhere in the economy.  Mind you, SUVs are still wasteful, but perhaps slightly less than their mileage would make us think.)

Now, the thing is that -- contrary to the Wall Street Journal's claim -- the rebound effect probably doesn't completely wipe out the benefit of rising efficiency.  The magnitude of system-wide rebound effects vary, but in typical circumstances they fall in the 10 percent to 40 percent range -- that is, for every 10 gallons of gas a car owner saves by switching from a regular car to a Prius, overall gas consumption might fall by 6 to 9 gallons.

Of course, the discussion above reflects the standard model for the rebound effect.  On occasion, however, new energy-efficient technologies create a "mega-rebound" effect, often called the Jevons Parodox.  William Jevons was the first to point out that  introduction of the Watt steam engine -- which was about three times as efficient as its predecessor -- led not to a decrease in coal consumption, but to a massive increase.  Previous coal-fired engines were so inefficient that they could only be used profitably in a few applications.  The Watt engine, however, was efficient enough that coal power became profitable for a dizzying array of uses -- so even though Watt each engine used coal more sparingly than previous models did, there were lots more engines in operation.  And, as a consequence, the introduction of an efficient technology caused coal consumption to soar.

Jevons-style mega-rebounds seem to be rare, however.  While it's theoretically possible that super-efficient cars will eventually make driving so cheap that the world will soon be awash in autos,  I don't see evidence that this is happening.  So while rebound effects raise some reasonable concerns about the system-wide benefits of buying a Prius, it's hard to say that the rising number of super-efficient cars on the road is having no effect on overall consumption. Rebound or no, it seems to me the Prius is almost certainly reducing -- albeit slightly -- the climate impacts of the transportation system.