How responsive is Saudi new vehicle fleet fuel economy to fuel-and vehicle-price policy levers?

This paper investigates the drivers of recent improvements in Saudi Arabia's fleet fuel economy for new vehicles including passenger cars and light-duty trucks. Vehicle choice models are estimated using both aggregate new vehicle sales data and disaggregate new vehicle buyer survey data. The estimated models are used to simulate counterfactual policy scenarios. Simulation results suggest that the Saudi gasoline price elasticity of demand for new vehicle fuel economy decreased slightly over recent years, but it is still more elastic than that of the United States. Moreover, the increase in domestic gasoline prices between 2014 and 2016 accounted for 42% of the increase in estimated new vehicle fleet fuel economy over that period. Finally, the estimated elasticities, and thus policy sensitivities, vary by income and household size. A revenue-neutral household income- and size-based feebate policy could be more progressive than a gasoline price increase for improving the new vehicle fleet fuel economy. •We explore drivers of recent improvements in Saudi fleet fuel economy for new passenger vehicles.•Estimated vehicle choice models are used to predict fleet fuel economy under various policies.•Gas price elasticity of demand for new vehicle fuel economy decreased slightly in recent years.•Gas price increases accounted for 42% of estimated increase in fleet fuel economy from 2014 to 2016.•Estimated elasticities, and thus policy sensitivities, vary by income and household size.