BGU researchers have discovered that an Israeli policy to reduce taxes on energy-efficient cars in an effort to reduce energy consumption actually had the opposite effect as more people took to the roads.
Dr. Ofir Rubin, Dr. Stav Rosenzweig and PhD student Aviv Steren were interested in taking a known phenomenon in energy efficiency products – the rebound effect – and assessing its impact on environmental policies. The rebound effect is such that, as an energy efficient product becomes more efficient, it becomes cheaper and therefore is used more, thereby reducing the overall energy savings.
It is the first time researchers have attempted to use an environmental policy as a natural experiment setting to estimate the magnitude of the rebound effect. Researchers often conduct laboratory experiments to examine consumer behavior. The downside of such experiments is that their validity is limited because they do not represent reality, that is, real life effects. A natural experiment enables researchers to conduct an experiment with real consumers, acting in a real setting, and thus with a strong validity, while still using control groups.
They discovered that an Israeli policy implemented in 2009 to subsidize energy efficient cars by adjusting the taxes paid upon purchase of a new car actually caused drivers to use their energy efficient cars more often. Taxes were adjusted in accordance with the car’s energy efficiency, with the greatest tax reduction coming for the most energy efficient cars. The researchers discovered a rebound effect of 40% - that is, the anticipated energy savings of the new tax scheme were reduced by 40% because the owners drove their cars much more often. In other words, for every 100 liters of fuel the government had hoped to save, it could only save 60 liters. This situation reflects a suboptimal outcome of the policy.
Their findings, "Assessing the rebound effect using a natural experiment setting: Evidence from the private transportation sector in Israel", were reported recently in Energy Policy. They are important findings because global transportation accounts for one fifth of global energy costs and a quarter of greenhouse gas emissions.
“Our study can help policy makers to more effectively design environmental policies, such as subsidizing energy efficient cars or taxing fuel,” says Rosenzweig.
Steren, Rubin and Rosenzweig are members of the Guilford Glazer Faculty of Business and Management. Rubin is a member of the Department of Public Policy and Administration and Rosenzweig of the Department of Management.
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