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Market equilibrium and welfare effects of a fuel tax in China: The impact of consumers' response through driving patterns
Abstract
We investigate the market equilibrium and welfare effects of a fuel tax in China relative to an alternative policy instrument that rations the number of new automobile sales through auctioned quotas. Unlike those of previous studies, our modeling approach incorporates both household car purchase and utilization decisions, the latter of which have been ignored in previous studies on China's fuel tax. Ignoring this margin of choice will underestimate the fuel tax's ability to mitigate externalities. Using detailed household-level panel data and a fixed effects econometric specification, we estimate the fuel price elasticity of vehicle miles traveled is −0.59 on average. The results of the counterfactual analysis suggest that a 51% increase in tax-inclusive gasoline prices will reduce car sales by 24.9% but increase social welfare to a degree that depends on vehicles' lifetime. We find that compared to auctioned quotas, the fuel tax results in greater car sales but higher social welfare.
... Liu (2017) argues that international oil price risk transmission can affect not only the Chinese auto industry as a whole via transmission within the oil chain industries and related industries affected by oil prices, but also within the national economy, influencing the demand structure and subsequently the auto market [16]. Tan et al. (2019) demonstrated that, compared to auctioned quotas, the fuel tax results in greater car sales and higher social welfare. However, due to the continued increase in oil prices in the international market, a further increase in the fuel tax would reduce the demand for private automobiles, which would have a negative impact on economic growth [17]. ...
... Tan et al. (2019) demonstrated that, compared to auctioned quotas, the fuel tax results in greater car sales and higher social welfare. However, due to the continued increase in oil prices in the international market, a further increase in the fuel tax would reduce the demand for private automobiles, which would have a negative impact on economic growth [17]. ...
... Considering the social welfare, the choice of fuel tax or auction quota or other policy instruments is very important. The fuel tax will not only control the number of vehicles, but also reduce vehicle usage and the externalities related to vehicle use [17]. ...
Breaking the highly oil-dependent energy use structure in the transportation sector will be crucial for China to reduce its dependence on crude oil imports and ensure its energy security, and the development of new energy vehicles is helping to break this dilemma. A time series analysis summarizes the possible relationships between new energy vehicles and crude oil imports, i.e., new energy vehicles, as alternatives to fuel vehicles, will reduce the demand for oil in the transportation sector, which will in turn reduce crude oil imports, and crude oil prices and crude oil production will inhibit crude oil imports. In this empirical study, monthly data from 2015 to 2021 on crude oil imports, the market share of new energy vehicles, crude oil prices, and crude oil production are selected, time-series multiple regression modelling is adopted, and endogeneity is treated using a generalized method of moments (GMM). The regression results show that crude oil imports decrease by one unit for every 16.32% increase in crude oil prices, indicating that price factor is the most influential factor in China’s crude oil imports, while crude oil imports decrease by one unit for every 133.99% increase in crude oil production, indicating that an increase in crude oil production contributes less to the reduction of crude oil imports. One unit of crude oil imports is added for every 15.53% increase in the share of new energy vehicles, indicating that the effect of new energy vehicles on limiting crude oil imports has not yet emerged. Probably due to the fact that new energy vehicles have not yet had a significant impact on fuel vehicles, oil consumption will continue to increase in the short and medium term, with oil for the petrochemical industry becoming the primary driver of this increase. Finally, policy implications are provided from the perspective of crude oil demand, supply, and China’s oil price mechanism.
... Several studies have explored the effectiveness of fuel conservation policies using combined car preference and usage data in developed countries such as the USA (Bento et al., 2009;Goldberg, 1998;Jacobsen, 2013;Small and Van Dender, 2007;West, 2004) and Japan (Fullerton et al., 2015), but applications of joint models are limited in developing country context. Tan et al. (2019) is the only study in the Chinese context that simultaneously analyses car usage and car type preferences to quantify the welfare effects of fuel taxes. However, they estimate separate models for car composition and vehicle kilometres travelled (VKT), leading to inconsistent parameter estimates (see Section 2.1 for a detailed discussion). ...
... They find that the cost of current PEV subsidy in China is $1.90 for an additional litre of gasoline saved. While the above-discussed studies ignore vehicle utilisation, Tan et al. (2019) simultaneously analyse vehicle choices and usage in the Chinese automobile market. They estimate fleet composition by applying the BLP model on market-level fleet composition and estimate vehicle usage using a fixed-effect regression model on panel data of individuals' VKT from 2009 to 10. ...
... However, Tan et al. (2019) adopt a two-stage approach, i.e. they estimate vehicle demand and VKT models sequentially. This approach might lead to inconsistent parameters of both models in terms of different magnitude and sign (Chugh and Cropper, 2017). ...
China and India, the world’s two most populous developing economies, are also among the world’s largest automotive markets and carbon emitters. To reduce carbon emissions from the passenger car sector, both countries have considered various policy levers affecting fuel prices, car prices and fuel economy. This study estimates the responsiveness of new car buyers in China and India to such policy levers and drivers including income. Furthermore, we estimate the potential for rebound effect and the effectiveness of a feebate policy. To accomplish this, we developed a joint discrete-continuous model of car choice and usage based on revealed preference survey data from approximately 8000 new car buyers from India and China who purchased cars in 2016-17. Conditional on buying a new car, the fuel consumption in both markets is found to be 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. While the feebate policy’s rebound effect is low – 7.3% for India and 1.6% for China– it does not appear to be an effective fuel conservation policy.
... One unique feature of our sales data is that the sales are counted using information from the compulsory third party (CTP) insurance of new vehicles, while most of the literature (e.g., Xiao et al., 2017;Li, 2017;Tan et al., 2019) uses registration data as a proxy for sales. As its name suggests, CTP is required for all vehicles on the roads in China. ...
... Therefore, we adopt these parameters from the previous literature. We directly take the marginal external costs of ICEVs from previous literature (Parry et al., 2014;Xiao et al., 2017;Tan et al., 2019). The marginal external costs of EVs are unavailable in previous literature, although the same estimates are available for the US market. ...
... By comparing all the simulated scenarios to the null scenario, we can also learn the effects of subsidies on technology adoption and emission abatement. 27 Previous literature on the welfare analysis of the Chinese auto market (e.g., Xiao et al., 2017;Li, 2017;Tan et al., 2019) also considered the non-pollution-related externalities of vehicle consumption, such as congestion, traffic accidents, and road damage, applying the parameter of marginal externality from extant research. ...
We employ a structural model and counterfactual analysis to identify the impact of subsidies on the Chinese electric vehicle (EV) sales and examine their welfare effects. Our findings suggest that subsidies are effective in promoting the diffusion of domestic EVs, but may adversely affect technological advancement. When the subsidies on domestic EVs are reduced, the welfare on domestic EV consumers and producers decreases. However, the reduction in government spending on EV subsidies outweighs this private welfare loss. Thus, the overall welfare increases. Subsidies cannot be justified from the perspective of reducing externalities because they increase rather than decrease pollution. Abstract We employ a structural model and counterfactual analysis to identify the impact of subsidies on the Chinese electric vehicle (EV) sales and examine their welfare effects. Our findings suggest that subsidies are effective in promoting the diffusion of domestic EVs, but may adversely affect technological advancement. When the subsidies on domestic EVs are reduced, the welfare on domestic EV consumers and producers decreases. However, the reduction in government spending on EV subsidies outweighs this private welfare loss. Thus, the overall welfare increases. Subsidies cannot be justified from the perspective of reducing externalities because they increase rather than decrease pollution.
... Several studies have explored the effectiveness of fuel conservation policies using combined car preference and usage data in developed countries such as the USA (Bento et al., 2009;Goldberg, 1998;Jacobsen, 2013;Small and Van Dender, 2007;West, 2004) and Japan (Fullerton et al., 2014), but applications of joint models are limited in developing country context. Tan et al. (2019) is the only study in the Chinese context that simultaneously analyses car usage and car type preferences to quantify the welfare effects of fuel taxes. However, they estimate separate models for car composition and vehicle kilometres travelled (VKT), leading to inconsistent parameter estimates (see Section 2.1 for a detailed discussion). ...
... They find that the cost of current PEV subsidy in China is $1.90 for an additional litre of gasoline saved. While the above-discussed studies ignore vehicle utilisation, Tan et al. (2019) simultaneously analyse vehicle choices and usage in the Chinese automobile market. They estimate fleet composition by applying the BLP model on market-level fleet composition and estimate vehicle usage using a fixed-effect regression model on panel data of individuals' VKT from 2009-10. ...
... They find that fuel price elasticity of vehicle usage is -0.59. However, Tan et al. (2019) adopt a two-stage approach, i.e. they estimate vehicle demand and VKT models sequentially. This approach might lead to inconsistent parameters of both models in terms of different magnitude and sign (Chugh and Cropper, 2017). ...
China and India, the world's two most populous developing economies, are also among the world's largest automotive markets and carbon emitters. To reduce carbon emissions from the passenger car sector, both countries have considered various policy levers affecting fuel prices, car prices and fuel economy. This study estimates the responsiveness of new car buyers in China and India to such policy levers and drivers including income. Furthermore, we estimate the potential for rebound effect and the effectiveness of a feebate policy. To accomplish this, we developed a joint discrete-continuous model of car choice and usage based on revealed preference survey data from approximately 8000 new car buyers from India and China who purchased cars in 2016-17. Conditional on buying a new car, the fuel consumption in both markets is found to be 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. While the feebate policy's rebound effect is low - 7.3% for India and 1.6% for China - it does not appear to be an effective fuel conservation policy.
... Finally, the market we study is of interest in itself. Our paper complements a small literature on welfare effects of the recent rationing of car sales in larger Chinese cities (Li, S., 2018;Xiao, Zhou and Hu, 2017;Tan, Xiao and Zhou, 2019;Huang and Wen, 2019). Importantly, this literature has assumed away the existence of a black market. ...
... The net effect could be that these mechanisms shift sales towards less expensive cars. Tan, Xiao and Zhou (2019) and Xiao, Zhou and Hu (2017), however, document increasing expenditures in Chinese cities that use lottery/auction hybrids. In Shanghai, which has used auctions to allocate license plates since 1996, there is a strong positive correlation between auction prices and car expenditures, so the net effect has empirically proved to be positive. ...
Black markets can reduce the effects of distortionary regulations by reallocating scarce resources toward consumers who value them most. The illegal nature of black markets, however, creates transaction costs that reduce the gains from trade. We take a partial identification approach to infer gains from trade and transaction costs in the black market for Beijing car license plates, which emerged following their recent rationing. We find that at least 11% of emitted license plates are illegally traded. The estimated transaction costs suggest severe market frictions: between 61% and 82% of the realized gains from trade are lost to transaction costs.
... The SBM model attempts to avoid the relaxation problem and the choice of angles to solve the measurement problem of non-expected output, but it cannot avoid the inherent shortcoming of the directional distance function: due to the subjective direction vector setting, the vector set of the same decision unit in different directions is biased under the efficiency of the calculation results [34]. Sueyoshi, T. and Sekitani K. [35] have proposed the environment RAM model based on the study of [36]. This model is not only non-radial and non-angular, but also avoids the subjective setting of model parameters, and is thus more conducive to accurately measuring the comprehensive efficiency considering environmental factors. ...
Negative externalities of transportation have long been a concern globally, and sustainable transportation is a shared goal among nations. Fuel taxes are regarded as an important economic means for transportation to curb fuel consumption, reduce traffic environmental pollution and realize green transportation. This study constructs a new index, Sustainable Development Efficiency (SDE), which integrates economic, environmental, and social sustainability using the Range Adjusted Measure (RAM) model of non-radial data envelopment analysis. Furthermore, the study employs the system Generalized Method of Moment (GMM) method to estimate the policy impact of diesel fuel tax on transportation SDE in China. The results indicate that a higher intensity of diesel fuel tax indirectly enhances transportation SDE in China by inhibiting the increase in truck ownership and operation in developed provinces regarding road freight transportation. Conversely, in less-developed provinces, the intensity of the diesel fuel tax can indirectly contribute to the increase in SDE by curbing the number of traffic accidents. Regional heterogeneity in SDE is evident: while western China shows potential for growth in road freight transport under the premise of ensuring environmental and social benefits, eastern China should speed up efforts to transform road freight transport into a more environmentally friendly and safer mode of transport.
... Taxes levied on motor fuels are consumption taxes that establish price signals providing incentives to reduce fuel consumption or improve the fuel efficiency of driving behaviour 5,8 . Drivers can reduce fuel use by adopting a more fuel-saving driving style 9 : keeping the proper tyre pressure 10 , driving shorter distances 11 , or choosing public transport 12 . In the long run, drivers can be encouraged to purchase more fuel-efficient or low-CO 2 vehicles 13,14 or move closer to their workplace 14 . ...
The article aims to explain road CO2 emissions, including passenger car emissions in the EU member states, with the rates of indirect taxes (except VAT) for petrol and diesel oil. Apart from tax rates, the analysis includes some selected variables concerning economies and transport infrastructure, which impact CO2 car emissions. Compared to the existing literature, we focus on emissions from passenger cars and analyse more countries over a more extended period using more updated data. Our findings confirm that fuel taxes have a generally negative but limited impact on emissions from passenger cars. This impact is independent of whether we relate emissions to the number of inhabitants or GDP and is generally stronger in EU member states with higher taxes. In many countries, the economic affordability of fuels has significantly increased over the last few years. This phenomenon is another argument for a more active tax policy, i.e., general adjustment of the tax rates in line with inflation. There is also great importance for those adjustments in times of high fuel prices when governments are under tremendous pressure not only to stop tax increases but to reduce them, which was the case in 2022 after the Russian aggression on Ukraine.
... As the current gasoline price is about RMB 8 yuan per litter, the current gasoline tax rate is about 19%. Existing studies have evaluated the effect of these fuel tax changes on consumers' demand, welfare, and driving behaviors (Lin and Zeng, 2013;Xiao and Ju, 2014;Tan et al., 2019). The fuel tax did not change during our sample period (2016-2019). ...
This paper explores the effect of gasoline prices on traffic congestion and carbon emissions. The international crude oil price is used as an instrumental variable for the gasoline price in Chinese cities. Empirical results show that a ten percent increase in gasoline prices significantly decreases traffic congestion in rush hours by 0.087 percent. In addition to reducing vehicle kilometers traveled, higher gasoline prices also decrease carbon emissions by increasing travel speed and fuel efficiency. A ten percent increase in gasoline prices is found to decrease CO2 emissions by 40.6 million metric tons, accounting for 2.3 percent of the total CO2 emissions in the transport sector of China in 2016. This paper's estimates offer guidance for gasoline pricing policies, fuel taxes, traffic congestion, and the Dual-Carbon Target.
... These are partial equilibrium effects -holding congestion and other factors affecting car adoption fixed at the time of the lottery. 16. Tan et al. (2019) show that a fuel tax outperforms a license auction in the short run due to these usage reductions. 17. ...
... A large body of literature discusses the sensitivity of energy consumption to taxes in Northern America (Basso & Oum, 2007;Davis & Kilian, 2011;Havranek et al., 2012), Europe (Baltagi & Griffin, 1997;Baranzini & Weber, 2013;Brons et al., 2008;Burguillo-Cuesta et al., 2011;Johansson & Schipper, 1997;Liddle, 2012;Pock, 2010;Zimmer & Koch, 2017;Tirkaso & Gren, 2020) and many other areas in the world (Burke & Nishitateno, 2013;Clerides & Zachariadis, 2008). According to the literature, taxes lead to a reduction in fuel consumption through changes in the driving patterns of households (Tan et al., 2019), fuel efficiency improvements in transport sectors (Fukui & Miyoshi, 2017), innovation in environment-related technologies (Bashir et al., 2021), prompting enterprises to switch to a less energy-intensive industry (Elliott et al., 2019), and increasing energy-saving renovation (Risch, 2020). Using different samples and methodologies, the direct price elasticities of demand for fossil fuels, mostly gasoline and diesel, are estimated. ...
China, the world's largest energy consumer, has been increasingly relying on pricing policies to improve energy efficiency in recent years. This paper estimates the impact of Differential Electricity Pricing (DEP) policy, which covers the most energy‐intensive industries in China. Under the DEP policy, electricity surcharges are imposed on enterprises using “eliminated” and “restricted” production technologies, of which the “eliminated” enterprises are more backward in technology level and are charged much higher electricity tariffs. We exploit a differences‐in‐differences approach to assess the effect of the DEP policy on fossil fuel consumption. The results indicate that the DEP policy led to a reduction in coal consumption intensity (CCI) of “eliminated” enterprises, which can be explained by the obsoleting of backward equipment in these enterprises. As for the “restricted” enterprises, it was economically optimal to continue to use “restricted” equipment; consequently, the DEP policy had no significant impact on CCI.
... Tan et al. [15] estimated the impact of the gasoline tax on China's social welfare using comprehensive household-level panel data and a fixed effects econometric specification. The counterfactual study found that a 51% rise in tax-inclusive fuel prices reduces automobile sales by 24.9 percent while increasing societal welfare to varying degrees depending on vehicle lifespan. ...
It is critical to enhance environmental energy taxes in order to offer a more secure business climate in Nigeria. Insecurity in Nigeria is severe, and it has become a component of the country's environmental problem to deal with. This research investigates the influence of environmental energy tariffs on Nigeria's insecurity condition. The research approach is cross-sectional, and secondary data from 2010 to 2020 were used in this study. According to the multiple regression results, all factors have a substantial beneficial influence on the country's insecurity management. The petroleum profit tax, gas exploration tax, and level of freedom from corruption, all have a good and substantial impact on security management. The study indicates that the government has significantly utilized environmental energy taxes to combat insecurity. However, if the country will be totally free from corruption, insecurity will be minimized. Therefore, the study urges immediate participation of international community in the Nigeria’s insecurity concerns. This move has become extremely essential to salvage the country from all ecologically connected difficulties and to guarantee peace and safety for all inhabitants. Concerning corruption, it is high time for the government to begin looking for the sponsors of insurgency and abduction in order to punish them more severely.
... Domestic research on fuel tax mainly focuses on macroscopic effects (Jiang and Ouyang 2017;Lin and Jia 2019;Tan et al. 2018;Deng 2019). Academics used computable general equilibrium model or its extended model to study fuel tax and environmental problems. ...
The balance between economic development and environmental governance has always been the focus of attention, and this has become a key issue facing in China. In recent years, the means of improving the environment through taxation are common, and it is more in line with China’s national conditions. Carbon tax and fuel tax are considered to be effective environmental supervision measures, and the implementation of this policy is bound to have a critical impact on the advance of economic level. However, the implementation effects of these two mechanisms may be different, and they may also have various effects on regional development. Therefore, based on the panel data of China’s 29 provinces from 2008 to 2018, we adopt the spatial autocorrelation method to explore the relationship between the economic levels of various areas. Then, establishing the panel spatial econometric model of economic growth and carbon tax, economic growth and fuel tax respectively to compare the implementation effects of the two tax policies. It turns out that there is a positive correlation between the economic growth of 29 provinces in China. And whether choosing to levy carbon tax or fuel tax, they all have their own advantages and disadvantages. Finally, according to the results of empirical analysis results, some relevant policy suggestions are put forward.
... This contradicts the results of previous studies (such as [23]) that found energy prices to be a key determinant for explaining GHG emissions. The rigid price elasticity of demand of fuels [46,47] shows that consumers would not react to price changes in the short term. Nevertheless, increased fuel prices may produce a substitution to more efficient or cheaper fuels in the long term, affecting accordingly carbon intensities and GHG emissions. ...
Understanding the underlying reasons for greenhouse gas (GHG) emissions trends in different countries is fundamental for climate change mitigation. This paper identifies the main determinants that affect GHG emissions growth and assesses their impact and differences among countries in Europe. Previous studies have produced inconclusive results and presented several limitations, such as the lack of quality of the data used, the reduced identification of determinants and the use of methods that did not enable hypothesis testing. Conversely, this research identifies an extended list of determinants of GHG emissions, performs an in-depth statistical analysis and contrasts the significance of determinants using panel data and multiple linear regression models for the period 1990–2017 for the main Eurozone countries. The study found that GDP and final energy intensity are the main drivers for the reduction of GHG emissions in Europe. Furthermore, energy prices are not significant and heterogeneous results are found for the renewable energy, fuel mix and carbon intensity determinants, pointing to a different behavior at the country level. The uneven impact of the main determinants of GHG emission growth suggest that a differentiated application of European policies at country level will enhance the efficiency of mitigation efforts in Europe.
... For example, the comparison between Models (i) and (iii) or between Models (ii) and (vi) enables us to see that, without using IVs, we are likely to overestimate the price coefficients. The differences in coefficients due to the use of instruments indicate that correcting for the endogeniety of prices matters (Berry et al., 1995 andTan et al., 2019). As the endogeneity problem caused by the positive correlation between unobserved characteristics and price yields the upward bias for the price coefficients, the OLS/Logit model exhibits less-price sensitive results. ...
Which comes first in the CO 2 emissions from the transportation sector: Consumer preference or technology advancement? Through a random-coefficients discrete-choice model, we estimate the demand for automobiles in Japan. Our model explicitly allows consumer preference regarding fuel economy to evolve over time and the estimation results confirm such a change. We then simulate consumer behavior, enabling consumers in 2006 and 2016 to choose automobiles sold in 2010. The results imply that, without technological advancements and increases in consumer preference for fuel-efficient cars, effective reduction in CO 2 emissions cannot be achieved.
JEL Classification: L62, Q48, Q55, Q58
We investigate how an increase in the rate of purchase tax for internal combustion engine vehicles (ICEVs) in China affects sales of ICEVs and battery electric vehicles (BEVs), environmental externalities of CO2 and PM2.5 emissions and social welfare. By building a random-coefficients discrete choice model based on the brand-level sales data and conducting counterfactual analyses, we find that, first, the own-price elasticity of market shares of ICEVs and BEVs are −3.07 and −2.93, respectively. Second, the increase in purchase tax rate by 2.5% for ICEVs with a displacement no higher than 1.6 L in 2017 has reduced the environmental externalities caused by CO2 and PM2.5 emissions. Third, the welfare effect depends crucially on the definition of social welfare and the assumptions about vehicle lifetime and manufacturers' pricing decisions. Finally, several policy implications are discussed.
Rationing mechanisms are widely used to allocate scarce resources caused by policy intervention. The effect of rationing on equilibrium usually depends on the rationing mechanism. However, stylized facts in the Chinese passenger vehicle market suggest that the quota on license plates shifts vehicle demand to the high-price end, regardless of whether rationing occurs through an auction or a lottery. This study provides a unified theoretical explanation and an empirical analysis for this finding. When the quota allocation process incurs opportunity costs, only the consumers with a high willingness-to-pay participate in the process, which shifts sales distribution to the high-price end.
As the largest automobile market in the world, gasoline price has had a profound impact on consumers in China. However, consumers always queue to refuel when gasoline prices rise. To examine the consumer responses and behaviors to gasoline price rise, we built a Motivation-Individuality-Reaction (MIR) model with a novel comprehensive analysis approach that employed a social network-based public survey and a questionnaire-based individual survey. We found that the tax-included gasoline prices are opaque partly because of the neutral public attitude, and while Chinese consumers are sensitive to gasoline prices, the sensitivity appears to decrease when there are continuous price rises. Personal perceptions rather than social-demographics were found to have a significant effect on consumer behaviour, which also explained the queuing to refuel actions. The findings also suggested that gasoline price rises should be no more than 20% over the short term to ensure consumer market stability. Consumer vehicle purchasing behaviours were found to be less sensitive to gasoline prices than vehicle using behaviours, which verified the applicability and effectiveness of the MIR model in analyzing consumer daily behaviours. The proposed model and mixed-methods-based approach could be applied to a wider range of social science-based energy research and behavioural economics analysis.
The increasing oil demand in China has brought negative issues, such as energy security risk, carbon emissions, and air pollution. Therefore, it is of considerable significance to rationally control total oil consumption and push it to peak as soon as possible to ensure national energy supply security and deal with climate change and environmental pollution. To this end, based on a computable general equilibrium (CGE) model, this study constructs a detailed carbon trading module to evaluate the socio-economic and environmental effects of the inclusion of different high oil-consuming industries in the emission trading system (ETS). Results show that, first, regarding total oil consumption control, when the ETS includes all high oil-consuming industries the total oil consumption and oil external dependence decrease most significantly. Second, in terms of environmental effects, the inclusion of the four high oil-consuming industries (i.e., Chemical, Non-Metal, Transportation, and Construction) has the best effect. It has the largest cumulative reduction of carbon emissions and the second-largest cumulative reduction of SO2 and NOX. Third, as for economic impact, the negative impact on GDP and the oil industry chain are the smallest when including the Chemical and Non-Metal industries in the ETS. Finally, this study conducted a series of sensitivity analyses, including key substitution elasticities and high international oil price, to verify the robustness of corresponding policy recommendations.
Which comes first in reducing the Carbon Dioxide (CO2) emissions from the transportation sector: consumer preference or technological advancement? Using a series of discrete-choice demand models, we estimate the demand for automobiles in Japan. Our model explicitly allows consumer preferences for fuel economy to evolve over time, and the estimation results confirm the existence of such a change. We then simulate consumer behavior, enabling consumers in 2010 to choose automobiles from 2016, and vice versa. The results imply that both consumer preferences and technological advancement are important-without technological advancement and increases in consumers' appreciation for fuel-efficient cars, CO2 emissions cannot be reduced.
Green credit financing (GCF) is a type of financial service provided by banks to encourage borrowers to commit green investment and achieve sustainable development. This study investigates a supply chain system consisting of a capital-constrained manufacturer and a well-funded supplier facing uncertain demand, in which the manufacturer may seek GCF from banks. An important prerequisite for obtaining a green loan is that the borrower must make green upgrades and ensure compliance with pre-specified environmental standards. We design a GCF model for a supply chain by imposing a hard constraint on carbon emissions. To determine the effectiveness of GCF, we conduct an in-depth analysis comparing the GCF with traditional trade credit financing (TCF), in which excessive carbon emissions are penalized. The optimal equilibrium solutions under GCF and TCF mode are obtained and their sensitivities to key parameters analyzed. Concerning the preferences of the two financing strategies, we find that under a relatively strict carbon emission policy, the manufacturer can set an appropriate green investment range to achieve a win-win situation with the supplier. Finally, we compare the social welfare of the supply chain for the different financing modes and find that there are regions in which both the social welfare and profit of the manufacturer can be a win-win. The government can guide manufacturers to make a win-win choice by setting different carbon caps.
The social cost, as one of the factors determining sustainability of socioeconomic development, is strongly dependent upon a number of casualties and mortality in road accidents. The condition of car tires appears to be one of the important factors determining the occurrence of accidents. The vast majority of vehicles are tested every year at vehicle inspection stations. One of the elements affecting the result of the technical condition test and basically the quality of vehicle braking is the technical condition of the tires. Their technical condition is a very important factor responsible for the quality of acceleration, braking, maintaining, or changing the direction of driving. As a consequence, it has a significant impact on road safety. The aim of the study is to examine the impact of tires on the results of tests performed at a vehicle inspection station. The study presents the results of bench measurements of the impact of selected features of tire condition of two vehicles during routine periodic inspections at a vehicle inspection station (VIS). The focus was on an attempt to assess the impact of inflation pressure, age, and tire tread wear on the braking process. The technical studies performed might be a source for legal steps assuring better management of road safety. It can also be expected that the tire choice and condition may affect fuel consumption, and therefore the amount of energy consumed by the road transport.
This article presents a welfare analysis of the vehicle quota system of Shanghai, China. The empirical findings suggest that the quota system leads to both welfare loss as a result of reduction in vehicle transactions and welfare gain because of less externality of auto consumption. The net effect depends on the shadow price of the marginal externality, the assumption of vehicle lifetime, and market conditions such as consumers' intrinsic preference for vehicles. Compared to a progressive tax system, the quota system is less effective in vehicle control but more efficient in improving social welfare. © (2017) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
We develop a behavioral model of durable good usage with mental accounting for sunk costs. It predicts higher-than-rational usage that attenuates at a rate that increases with sunk costs. Singapore government policy varied the sunk cost of buying a new car. Using Singapore data, we estimate the elasticity of driving with respect to sunk costs to be 0.048, which implies that government policy between 2009 and 2013 was associated with 86 kilometers per month, or 5.6%, more driving. The results are robust to specifying sunk costs as relative to buyer income and estimation with Hong Kong data. We believe this to be the first field evidence of the sunk cost fallacy in usage of a major durable good.
The online appendix is available at https://doi.org/10.1287/mnsc.2016.2651.
This paper was accepted by John List, behavioral economics.
This article studies the within-model-year pricing, production, and inventory management of new automobiles. Using new monthly data on U.S. transaction prices, we document that, for the typical vehicle, prices fall over the model year at a 9.0% annual rate. Concurrently, both sales and inventories are hump shaped. To explain these time series, we formulate an industry model for new automobiles in which inventory and pricing decisions are made simultaneously. The model predicts that automakers' build-to-stock inventory management policy substantially influences the time series of prices and sales, accounting for four tenths of the price decline observed over the model year.
This paper employs analytical and numerical general equilibrium models to examine the significance of pre-existing factor taxes for the costs of pollution reduction under a wide range of environmental policy instruments. Pre-existing taxes imply significantly higher abatement costs for every instrument considered, but the cost-impact of such taxes differs sharply across instruments. Prior taxes can eliminate the cost-advantage of market-based instruments (emissions taxes and permits) over technology mandates or performance standards, particularly if the former policies fail to generate revenues and use the revenues to finance cuts in the prior distortionary taxes. The cost differences between instruments are highly sensitive to the extent of pollution abatement: for most policies, abatement costs converge to the same value as pollution abatement approaches 100 percent.
We examine the impacts of increased US gasoline taxes in a model that links the markets for new, used, and scrapped vehicles and recognizes the considerable heterogeneity among households and cars. Household choice parameters derive from an estimation procedure that integrates individual choices for car ownership and miles traveled. We find that each cent-per-gallon increase in the price of gasoline reduces the equilibrium gasoline consumption by about 0.2 percent. Taking account of revenue recycling, the impact of a 25-cent gasoline tax increase on the average household is about $30 per year (2001 dollars). Distributional impacts depend importantly on how additional revenues from the tax increase are recycled. (JEL D12, H22, H25, L62, L71)
We estimate the rebound effect for motor vehicles, by which improved fuel efficiency causes additional travel, using a pooled cross section of US states for 1966-2001. Our model accounts for endogenous changes in fuel efficiency, distinguishes between autocorrelation and lagged effects, includes a measure of the stringency of fuel-economy standards, and allows the rebound effect to vary with income, urbanization, and the fuel cost of driving. At sample averages of variables, our simultaneous-equations estimates of the short- and long-run rebound effect are 4.5% and 22.2%. But rising real income caused it to diminish substantially over the period, aided by falling fuel prices. With variables at 1997-2001 levels, our estimates are only 2.2% and 10.7%, considerably smaller than values typically assumed for policy analysis. With income and starting fuel efficiency at 1997-2001 levels and fuel prices 58 percent higher, the estimates are still only 3.1% and 15.3%, respectively.
Economists often favour market-based mechanisms over non-market based mechanisms to allocate scarce public resources on grounds of economic efficiency and revenue generation. When the usage of the resources in question generates type-dependent negative externalities, the welfare comparison can become ambiguous. Both types of allocation mechanisms are being implemented in China's major cities to distribute limited vehicle licences as a measure to combat worsening traffic congestion and air pollution. While Beijing employs non-transferable lotteries, Shanghai uses an auction system. This article empirically quantifies the welfare consequences of the two mechanisms by taking into account both allocation efficiency and automobile externalities post-allocation. Our analysis shows that different allocation mechanisms lead to dramatic differences in social welfare. Although Beijing's lottery system has a large advantage in reducing automobile externalities over auction, the advantage is offset by the significant allocative cost from misallocation. The lottery system in Beijing resulted in a social welfare loss of 30 billionYuan (nearly $5 billion) in 2012 alone. A uniform-price auction would have generated nearly 20 billion Yuan to Beijing municipal government, more than covering all its subsidies to the local public transit system. © The Author(s) 2017. Published by Oxford University Press on behalf of The Review of Economic Studies Limited.
We investigate the efficiency of vehicle taxation in second-best settings. A random-coefficients logit model is estimated for quarterly automobile sales data between 2004 and 2012 from the Japanese new car market. The quasi-experimental nature of the data is exploited in two ways. First, we construct the location of product-specific tax rates in the characteristics space as a set of instruments to control for endogeneity of observed car prices. Second, the large and persistent variation in effective vehicle prices, caused due to Japan's green car tax policy since 2009, are used to obtain consistent estimates of the own- and cross-price elasticities. Our results indicate evidence for substantial scale and composition effects: Though the policy successfully reduced sales-weighted average emissions, it also increased total sales substantially. Consequently, the policy-induced reduction in annual vehicle CO2 emissions was small. In contrast, a modified version of the emissions-based vehicle tax a la Fullterton and West (2002), based on the fuel efficiencies of car models, could have reduced annual vehicle CO2 emissions substantially more while increasing total economic surplus relative to the no policy counterfactual.
We investigate whether car buyers are myopic about future fuel costs. We estimate the effect of gasoline prices on short-run equilibrium prices of cars of different fuel economies. We then compare the implied changes in willingness-to-pay to the associated changes in expected future gasoline costs for cars of different fuel economies in order to calculate implicit discount rates. Using different assumptions about annual mileage, survival rates, and demand elasticities, we calculate a range of implicit discount rates similar to the range of interest rates paid by car buyers who borrow. We interpret this as showing little evidence of consumer myopia. (JEL D12, H25, L11, L62, L71, L81)
This paper explores the effects of consumption-tax and fuel-tax adjustments in the Chinese automobile industry. Applying the model and simulation method of Berry, Levinson, and Pakes (1995), we conduct a comparative static analysis of equilibrium prices and sales, fuel consumption,and social welfare before and after tax adjustments. For the first time, we compare the progressivity of both taxes. Our empirical findings suggest that the fuel tax is effective in decreasing fuel consumption at the expense of social welfare, while the consumption tax does not significantly affect either fuel consumptionor social welfare. © 2014 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
The Chinese passenger-vehicle industry contains a large number of manufacturers. Some of them are members of big corporate groups centered around state owned enterprises. These corporate relationships may facilitate collusion. This paper applies the non-nested hypothesis test methodology to data on passenger vehicles to identify whether price collusion exists within corporate groups or across groups. Our empirical results support the assumption of Bertrand Nash competition in the Chinese passenger-vehicle industry: We find no evidence for within or cross-group price collusion. Our policy experiments show that indigenous brands will gain market shares and profits if within-group companies merge.
This paper estimates the price and income elasticities of demand for gasoline in China. Our estimates of the intermediate-run price elasticity of gasoline demand range between −0.497 and −0.196, and our estimates of the intermediate-run income elasticity of gasoline demand range between 1.01 and 1.05. We also extend previous studies to estimate the vehicle miles traveled (VMT) elasticity and obtain a range from −0.882 to −0.579.
We estimate the sensitivity of scrap decisions to changes in used car values – the "scrap elasticity" – and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities will tend to produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the elasticities we estimate suggest that 13-23% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Based on the long-run equilibrium relationships between international crude oil prices and domestic gasoline prices, we employ an asymmetric error correction model (ECM) with the seemingly unrelated regression (SUR) method, to study the price pass-through of the wholesale gasoline in 20 provincial-level administrative divisions in China during the period between 2009 and 2013. We estimate the speeds, sizes, region differences and asymmetries in the gasoline price adjustment processes. We find that 16 provinces exhibit significant "rockets and feathers" phenomena. In Jiangxi province, where the highest level of asymmetry exists, wholesale prices are on average 13.26 yuan higher in the same week after a one-dollar increase in the price of crude oil, but are still 2.49 yuan higher after a one-dollar decrease. We discuss the identification conditions of our models, the possible theories behind the asymmetries, and their policy implications.
We develop a consumer-level model of vehicle choice to shed light on the erosion of the U.S. automobile manufacturers' market share during the past decade. We examine the influence of vehicle attributes, brand loyalty, product line characteristics, and dealerships. We find that nearly all of the loss in market share for U.S. manufacturers can be explained by changes in basic vehicle attributes, namely: price, size, power, operating cost, transmission type, reliability, and body type. U.S. manufacturers have improved their vehicles' attributes but not as much as Japanese and European manufacturers have improved the attributes of their vehicles.
Previous work shows that policies that subsidize new vehicles and tax size, miles, or gasoline efficiently reduce pollution. Less is known about their distributional effects. This paper examines distributional effects by estimating the joint demand for vehicles and miles, using the Consumer Expenditure Survey. Greater price responsiveness among low-income households enhances progressivity of gas or miles taxes across lower incomes, and mitigates regressivity across upper incomes. Taxes on engine size or subsidies to new vehicles are significantly more regressive than gas or miles taxes.
This paper studies an integrated economic model of automobile emissions that incorporates consumer mileage, automobile feature, and fuel content choices. Subject to informational constraints that bind the government, optimal regulatory policies are shown to include fuel content standards, gasoline taxes, and direct automobile regulation or taxation. Optimal automobile taxes are tied to the mileage that regulators can anticipate will be driven on a given car. In dynamic environments, constrained efficiency can be achieved by periodic automobile taxes or, under some circumstances, a combination of new car regulation and accelerated vehicle retirement subsidies. Desired properties of vehicle retirement programs are discussed.
This paper uses a unique dataset of monthly new vehicle sales by detailed model from 1978 to 2007, and implements a new identification strategy to estimate the effect of the price of gasoline on individual vehicle model sales. We control for unobserved vehicle and consumer characteristics by using within model year changes in the price of gasoline and sales. We find a significant sales response, suggesting that the gasoline price increase from 2002 to 2007 explains nearly half of the decline in market share of US manufacturers. On the other hand, an increase in the gasoline tax would only modestly raise average fuel economy. (JEL H25, L11, L62, L71)
This paper develops an analytical framework for assessing the second-best optimal level of gasoline taxation, taking into account unpriced pollution, congestion, and accident externalities and interactions with the broader fiscal system. We provide calculations of the optimal taxes for the United States and the United Kingdom under a wide variety of parameter scenarios, with the gasoline tax substituting for a distorting tax on labor income. Under our central parameter values, the second-best optimal gasoline tax is 1.34 per gallon for the United Kingdom. These values are moderately sensitive to alternative parameter assumptions. The congestion externality is the largest component in both nations, and the higher optimal tax for the United Kingdom is due mainly to a higher assumed value for marginal congestion cost. Revenue-raising needs, incorporated in a “Ramsey” component, also play a significant role, as do accident externalities and local air pollution. The current gasoline tax in the United Kingdom ($2.80 per gallon) is more than twice this estimated optimal level. Potential welfare gains from reducing it are estimated at nearly one-fourth the production cost of gasoline used in the United Kingdom. Even larger gains in the United Kingdom can be achieved by switching to a tax on vehicle miles with equal revenue yield. For the United States, the welfare gains from optimizing the gasoline tax are smaller, but those from switching to an optimal tax on vehicle miles are very large.
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
The ready-to-eat cereal industry is characterized by high concentration, high price-cost margins, large advertising-to-sales ratios, and numerous introductions of new products. Previous researchers have concluded that the ready-to-eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition. This paper empirically examines this conclusion. In particular, I estimate price-cost margins, but more importantly I am able empirically to separate these margins into three sources: (i) that which is due to product differentiation; (ii) that which is due to multi-product firm pricing; and (iii) that due to potential price collusion. The results suggest that given the demand for different brands of cereal, the first two effects explain most of the observed price-cost margins. I conclude that prices in the industry are consistent with noncollusive pricing behavior, despite the high price-cost margins. Leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality. It is these two factors that lead to high price-cost margins.
This paper develops techniques for empirically analyzing demand and supply in differentiated product markets and then applies these techniques to the U.S. automobile industry. The authors' framework enables one to obtain estimates of demand and cost parameters for a class of oligopolistic differentiated products markets. These estimates can be obtained using only widely available product-level and aggregate consumer-level data, and they are consistent with a structural model of equilibrium in an oligopolistic industry. Applying these techniques, the authors obtain parameters for essentially all autos sold over a twenty-year period. Copyright 1995 by The Econometric Society.
This paper examines the effects of the Corporate Average Fuel Economy Standards (CAFE) on automobile sales, prices, and fuel consumption. First, a discrete choice model of automobile demand and a continuous model of vehicle utilization are estimated using micro data from the Consumer Expenditure Survey for 1984-90. Next, the demand side model is combined with a model of oligopoly and product differentiation on the supply side. With these elements in place, the effects of the CAFE regulation are assessed through simulations and compared to the effects of alternative policy instruments, such as an increase in gasoline tax. Copyright 1998 by Blackwell Publishing Ltd
Collusion or competition? Interfirm relationships in the Chinese auto industry
- T H Ho
- I P L Png
- S Reza
- W Hu
- J Xiao
- X Zhou
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Hu, W., Xiao, J., Zhou, X., 2014. Collusion or competition? Interfirm relationships in the Chinese auto industry. J. Ind. Econ. 62, 1-40, https://doi.org/10.1111/joie.
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The effect of beijing's driving restrictions on pollution and economic activity
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A Dictionary of Petroleum Refining
- J Wang
Wang, J., 2013. A Dictionary of Petroleum Refining, second ed. China Petrochemical Press.