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2015 Archives

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Papers

VEHICLE MILES (NOT) TRAVELED: WHY FUEL ECONOMY REQUIREMENTS DON’T INCREASE HOUSEHOLD DRIVING
Jeremy West, Mark Hoekstra, Jonathan Meer, Steven L. Puller:
A major concern with addressing the negative externalities of gasoline consumption by regulating fuel economy, rather than increasing fuel taxes, is that households respond by driving more. This paper exploits a discrete threshold in the eligibility for Cash for Clunkers to show that fuel economy restrictions lead households to purchase vehicles that have lower cost-per-mile, but are also smaller and lower-performance. Whereas the former effect can increase driving, the latter effect can reduce it. Results indicate these households do not drive more, suggesting that behavioral responses do not necessarily undermine the effectiveness of fuel economy restrictions at reducing gasoline consumption.
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ENVIRONMENTAL REGULATION, IMPERFECT COMPETITION AND MARKET SPILLOVERS: THE IMPACT OF THE 1990 CLEAN AIR ACT AMENDMENTS ON THE US OIL REFINING INDUSTRY
Richard L. Sweeney:
The 1990 Clean Air Act Amendments imposed extensive restrictions on refined petroleum product markets, requiring select end users to purchase new cleaner versions of gasoline and diesel. I estimate the impact of this intervention on refining costs, product prices and consumer welfare. Isolating these effects is complicated by several challenges likely to appear in other regulatory settings, including overlap between regulated and non-regulated markets and deviations from perfect competition. Using a rich database of refinery operations, I estimate a structural model that incorporates each of these dimensions, and then use this cost structure to simulate policy counterfactuals. I find that the policies increased gasoline production costs by 7 cents per gallon and diesel costs by 3 cents per gallon on average, although these costs varied considerably across refineries. As a result of these restrictions, consumers in regulated markets experienced welfare losses on the order of $3.7 billion per year, but this welfare loss was partially offset by gains of $1.5 billion dollars per year among consumers in markets not subject to regulation. The results highlight the importance of accounting for imperfect competition and market spillovers when assessing the cost of environmental regulation.
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ENVIRONMENTAL BENEFITS FROM DRIVING ELECTRIC VEHICLES
Stephen P. Holland, Erin T. Mansur, Nicholas Z. Muller, Andrew J. Yates:
Electric vehicles offer the promise of reduced environmental externalities relative to their gasoline counterparts. We combine a theoretical discrete-choice model of new vehicle purchases, an econometric analysis of the marginal emissions from electricity, and the AP2 air pollution model to estimate the environmental benefit of electric vehicles. First, we find considerable variation in the environmental benefit, implying a range of second-best electric vehicle purchase subsidies from $3025 in California to -$4773 in North Dakota, with a mean of -$742. Second, over ninety percent of local environmental externalities from driving an electric vehicle in one state are exported to others, implying that electric vehicles may be subsidized locally, even though they may lead to negative environmental benefits overall. Third, geographically diferentiated subsidies can reduce deadweight loss, but only modestly. Fourth, the current federal purchase subsidy of $7500 is worse than no subsidy at all.
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SEARCHING FOR HIDDEN COSTS: A TECHNOLOGY-BASED APPROACH TO THE ENERGY EFFICIENCY GAP IN LIGHT-DUTY VEHICLES
Gloria Helfand, et al:
The benefit-cost analysis of standards to reduce vehicle greenhouse gas emissions and improve fuel economy by the U.S. Environmental Protection Agency (EPA) and the Department of Transportation (DOT) displayed large net benefits from fuel savings for new vehicle buyers. This finding pointed to an energy efficiency gap: the amount of energy-saving technology provided in private markets appeared not to include all the technologies that produce net private benefits. The finding of a gap involves three pathways. First, the energy-saving technologies must be effective in achieving fuel reductions. Second, the cost estimates for those technologies must be lower than the present value of fuel reductions. Third, possible “hidden costs” — undesirable aspects of the new technologies – must not exceed the net financial benefits. This study examines the existence of hidden costs in energy-saving technologies through a content analysis of auto reviews of model-year 2014 vehicles.
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UNDERSTANDING THE DECLINE IN THE PRICE OF OIL SINCE JUNE 2014
Christiane Baumeister, Lutz Kilian:
Some observers have conjectured that the steep decline in the price of oil between June and December 2014 resulted from positive oil supply shocks in the second half of 2014. Others have suggested that a major shock to oil price expectations occurred when in late November 2014 OPEC announced that it would maintain current production levels despite the steady increase in non-OPEC oil production. Both conjectures are perfectly reasonable ex ante, yet we provide quantitative evidence that neither explanation appears supported by the data. We show that more than half of the decline in the price of oil was predictable in real time as of June 2014. We attribute $11 of this predictable decline to the cumulative effects of adverse demand shocks prior to July 2014, reflecting a slowing global economy, and $16 to positive oil supply shocks and to shocks to expected oil production that occurred prior to July 2014. The remaining oil price decline is accounted for by a shock to oil price expectations in July 2014 that lowered the demand for oil inventories and a shock to the demand for oil associated with an unexpectedly weakening economy in December 2014, which lowered the price of oil by an additional $9 and $13, respectively.
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STEP ON IT: APPROACHES TO IMPROVING EXISTING VEHICLES’ FUEL ECONOMY
Ashley Langer, Shaun McRae:
Personal transportation seems poised for a transformation as vehicles begin communicating with their surroundings, warning drivers of road hazards, and even driving themselves. These technologies promise to reduce congestion and accidents, potentially by an order of magnitude.In this paper, we argue that these new technologies, along with roadway infrastructure investment, also have the potential to drastically reduce the amount of fuel needed for drivers to complete trips, even without otherwise changing their vehicles. These benefits occur by reducing the substantial variation in fuel economy achieved by different drivers in identical vehicles.
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Presentations

The Energy Efficiency Gap in Light-duty Vehicles

Volkswagen’s Defeat Device Scandal

Hidden Costs – German Discussant

Hausman Discussion – Energy efficiency

Benefits of Driving Electric Vehicles?

Improving Existing Vehicles’ Fuel Economy

The Impact of the 1990 Clean air Act on the U.S. Oil Refining Industry

Videos

UM TE3 Conference 2015 Afternoon Session 1 Part 1

UM TE3 Conference 2015 Afternoon Session 2