# Fuel consumption elasticities, rebound effect and feebate effectiveness in the Indian and Chinese new car markets

**Authors:** Prateek Bansal, Rubal Dua  
**arXiv:** [2201.08995](https://arxiv.org/abs/2201.08995)  
**Date:** 2022-01-22  
**Summary page:** https://www.summarizepaper.com/en/paper/2201.08995v1/

## Key points

- China and India are large automotive markets and carbon emitters
- Both countries have considered policy levers to reduce carbon emissions from passenger cars
- Study aims to estimate responsiveness of new car buyers in China and India to policy levers affecting fuel prices, car prices, and fuel economy
- Joint discrete-continuous model of car choice and usage developed based on revealed preference survey data from approximately 8,000 new car buyers who purchased cars in 2016-17 in both countries
- Fuel consumption in both markets is relatively unresponsive to fuel price and income, with magnitudes of elasticity estimates ranging from 0.12 to 0.15
- Mean segment-level direct elasticities of fuel consumption relative to car price and fuel economy range from 0.57 to 0.65
- Rebound effect on fuel savings due to cost-free fuel economy improvement is found to be 17.1% for India and 18.8% for China
- Revenue-neutral feebate policy with average rebates and fees of up to around 15% of the retail price resulted in fuel savings of around 0.7% for both markets
- Feebate policy's rebound effect is low - at only 7.3% for India and 1.6% for China - it does not appear to be an effective fuel conservation policy

## Summary

China and India are two of the world's largest automotive markets and carbon emitters, as well as the most populous developing economies. To reduce carbon emissions from passenger cars, both countries have considered various policy levers affecting fuel prices, car prices, and fuel economy. This study aims to estimate the responsiveness of new car buyers in China and India to such policy levers and drivers, including income. Additionally, it estimates the potential for rebound effect and evaluates the effectiveness of a feebate policy. The study developed a joint discrete-continuous model of car choice and usage based on revealed preference survey data from approximately 8,000 new car buyers who purchased cars in 2016-17 in both countries. The results show that conditional on buying a new car, fuel consumption in both markets is relatively unresponsive to fuel price and income, with magnitudes of elasticity estimates ranging from 0.12 to 0.15. For both markets, the mean segment-level direct elasticities of fuel consumption relative to car price and fuel economy range from 0.57 to 0.65. The rebound effect on fuel savings due to cost-free fuel economy improvement is found to be 17.1% for India and 18.8% for China. A revenue-neutral feebate policy with average rebates and fees of up to around 15% of the retail price resulted in fuel savings of around 0.7% for both markets. However, while the feebate policy's rebound effect is low - at only 7.3% for India and 1.6% for China - it does not appear to be an effective fuel conservation policy.