ABSTRACT
It has long been realized that improving energy efficiency releases an economic reaction that partially offsets the original energy saving. As the energy efficiency of some process improves, the process becomes cheaper, thereby providing an incentive to increase its use. Thus total energy consumption changes less than proportionally to changes in physical energy efficiency. For motor vehicles, the process under consideration is use of fuel in producing vehicle-miles traveled (VMT). Our empirical specification is based on a simple aggregate model that simultaneously determines VMT, vehicles, and fuel efficiency. The coefficient on the lagged dependent variable implies considerable inertia in behavior, with people adjusting their travel in a given year by just 21 percent of the ultimate response to a permanent change. The equation exhibits only mild autocorrelation, giving people confidence that their specification accounts for most influences that move sluggishly over time.
