Given how oil is back in the media spotlight and as oil markets brace for the implementation of the Iranian oil embargo, it seems as good a time as any to revisit the question of high oil prices and their impact on the U.S. economy (as well as revitalize my hitherto moribund blog output), discussed at length in this post. Read more »

Megan McArdle and Mark Kleiman have been engaged in a little debate on their blogs over the merits of the new CAFE standards for medium and heavy duty vehicles that were announced last week. McArdle criticizes the standards by pointing out (correctly) that commercial trucking operations are pretty sophisticated and cost conscious, which means that unlike car consumers, they’re quite likely to already buy efficient vehicles when high fuel costs merits that. Kleiman replies in defense of the standards by asserting (also correctly) that there are externalities involved: even if no individual trucker benefits from increasing fuel efficiency, society can gain as a whole, since reducing aggregate oil consumption should cut the price of oil. McArdle responds in his comments with three basic claims. First, the rebound effect for heavy trucks should be large, i.e. truckers will drive more if they get more efficient trucks, which will deeply erode any claimed oil savings. Second, since truckers buy diesel rather than oil, the impact of higher fuel efficiency on oil prices will be limited. Third, there are other externalities arising from CAFE standards, some of which may be negative. Read more »

Switch to a more efficient car, and you’ll drive a bit more, since extra gasoline now costs you less. This well-known phenomenon is known as the “rebound effect”. In the case of cars, it eats up about ten percent of the fuel savings from greater fuel efficiency. But at the level of economies, many believe, it’s much worse. All the money saved through more efficient automobiles and better refrigerators doesn’t just mean more summer road trips and Sub-Zeros – it means more money pumped into the whole economy, and hence greater emissions overall. Read more »

I like labeling schemes, like Energy Star, that help consumers make more energy-efficient choices. But sometimes policymakers slip up. In California, they’ve just started offering a $200 rebate on new refrigerators whose efficiency exceeds Energy Star requirements by a substantial amount. What could be wrong with that? Read more »