Improved fuel efficiency due to CAFE standards reduces the amount of fuel needed to travel a given distance, which, all else equal, would reduce the amount of gasoline consumed. But improved fuel efficiency also reduces the cost of driving, which creates an incentive for people to drive more. This is commonly called “the rebound effect,” and a consensus in the research literature is that this offsets 10-20% of the fuel savings from the CAFE standards program.
Analyzing data from 1997-2001, University of California-Irvine economists Kenneth Small and Kurt Van Dender estimate the rebound effect to be 10.7%, reducing by that amount the projected fuel savings.[69] Resources for the Future economists Paul Portney, Ian Parry, Howard Gruenspecht and Winston Harrington survey the literature and find estimates for the rebound effect of between 10%-20%.[70] Thomas Klier and Joshua Linn also use a range of 10-20% for the rebound effect in their analysis of the effects of CAFE standards.[71] Both the EPA and National Highway Traffic Safety Administration believe the rebound effect to be 10% as well.[72]
Coupling the rebound effect with the previously mentioned impact CAFE standards have on the used vehicle market, the actual fuel savings realized from the CAFE standards program is 26-36% less than what is expected. In other words, all the fuel-saving projections from the program are, due to these other unintended consequences, between one-quarter and one-third less effective than they appear.