Working Papers

The Cost of Credit and the Energy Efficiency Gap: Evidence from the U.S. New Vehicle Market 

The “energy efficiency gap” is a puzzle characterized by consumer under-investment in energy-efficient products (e.g., hybrid vehicles), whose higher upfront cost is offset by future energy savings. One common but empirically unsubstantiated explanation for the gap is that credit constraints—high borrowing costs or a lack of access to credit—hinder consumers’ ability to make energy efficiency investments. While credit constraints often refer to a consumer’s access to credit (i.e., the extensive margin), they can also related to a consumer’s financing costs conditional on being approved for a loan (i.e., the intensive margin). This paper studies the intensive margin of credit constraints and provides the first direct evidence of the relationship between consumers’ cost of credit and fuel economy demand in the U.S. new vehicle market. On average, increasing a consumer’s auto loan interest rate from 2% to 5% APR is associated with a 0.09 MPG decrease in purchased fuel economy. For a typical auto loan, this corresponds to $2,313 in additional interest paid, but only $97 in lifetime fuel cost savings lost. This disparity calls into question the suggestion that credit constraints are a meaningful contributor to the energy efficiency gap for durable goods in the U.S.

How much do consumers value fuel cost savings? Evidence from the passenger vehicle leasing market

with Benjamin Leard

Vehicle leasing involves a consumer renting a car for an average of three years. Given the typical lease length, we show that estimating valuation of leased vehicle fuel costs is fundamentally different from estimating valuation of purchased vehicle fuel costs. We find that new vehicle lessees and buyers both undervalue lifetime fuel costs. But because leasing periods last about three years, new vehicle lessees fully value lease-specific fuel costs. Our estimates also imply that leasing companies set residual values, defined as the post-lease expected value of the vehicle, with the expectation that used vehicle buyers undervalue post-lease fuel costs. 

Resources for the Future press release

Work in Progress

Should electric vehicle purchase subsidies be linked with scrappage requirements?

with Benjamin Leard

Non-Peer Reviewed Publications

What Should Federal Agencies Assume for How Much Consumers Are Willing to Pay for Fuel Cost Savings?

with Benjamin Leard, Joshua Linn, and Virginia McConnell 

Resources For the Future's Common Resources Blog, September 22, 2021

Do Credit Constraints Explain the Energy Efficiency Gap?

Kleinman Center for Energy Policy blog, July 26, 2021

Subsidy Structure Could Be a Speed Bump for Chuck Schumer's Clean Car Adoption Plan

with Benjamin Leard 

Resources For the Future's Common Resources Blog, August 24, 2020

Nature-Based Recreation: Understanding Campsite Reservations in National Parks

with Margaret Walls and Casey Wichman

Resources For the Future Report, November 2018