Driving the Economy : Automotive Travel , Economic Growth , and the Risks of Global Warming Regulations

However, there also appear to be bi-directional effects: GDP growth also, in some studies, shows a strong causal relationship vis-à-vis energy use. The net effect of energy use on GDP is thus a balance of the two directions of causality. The literature directly examining the VMT-economy relationship is small. The author reviews the various threads of the literature. Studies focusing on causality effects are particularly rare. Thus, the author presents a new, econometric, causality investigation. The VMT-economy causality investigation finds that, indeed, VMT is a large and statistically significant driver of GDP. It finds also that, historically at least, the price of energy has not been an important driver of innovation in vehicle efficiency. If fuel efficiency could be improved, there would be positive economic effects, but limited, long-run effects on VMT. Specifically, the causality analysis reveals the following: Although the causality between VMT and GDP is bi-directional, the primary one is for VMT to " cause " GDP growth. In the short run (2 years), an exogenous (an outside influence, such as regulation), downward shock to VMT results in a reduction of GDP of 90 percent of the size of the VMT shock. In the long run (20 years) the link is weaker, at about 46 percent. In contrast, endogenous (an influence from within the model, research-or discovery-based) improvements in fuel efficiency appear to have a positive effect on GDP. A 10 percent increase in fuel efficiency yields only a 1 percent GDP increase in the short run, but a 6 percent effect in the long run. VMT is not particularly sensitive to shocks to fuel price alone. The values calculated by the analysis predict well the effects of recent gasoline price increases on VMT. Increases in fuel efficiency cause positive rebounds (increases) in VMT. Although the effect is modest in the short run, after 20 years, exogenous increases in fuel-efficiency cause completely offsetting increases in VMT, and thus, energy use, everything else equal. This does not bode well for strategies such as regulated fleet fuel efficiency standards having a persistent effect on VMT or energy use. It suggests that much of the positive effect of fuel-efficiency improvements on GDP may flow from rebound effects on VMT. The response of fleet fuel efficiency to a shock in fuel prices is positive, but very small. This does not bode well for using fuel taxes as a mechanism to stimulate innovation …