The Effects of Transport Regulation on the Oil Market: Does Market Power Matter?

36 Pages Posted: 20 Mar 2011

See all articles by Knut Einar Rosendahl

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Snorre Kverndokk

Ragnar Frisch Centre for Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 19, 2011

Abstract

Popular instruments to regulate consumption of oil in the transport sector include fuel taxes, biofuel requirements, and fuel efficiency. Their impacts on oil consumption and price vary. One important factor is the market setting. We show that if market power is present in the oil market, the directions of change in consumption and price may contrast those in a competitive market. As a result, the market setting impacts not only the effectiveness of the policy instruments to reduce oil consumption, but also terms of trade and carbon leakage. In particular, we show that under monopoly, reduced oil consumption due to increased fuel efficiency will unambiguously increase the price of oil.

Keywords: Transport regulations, oil market, monopoly, terms-of-trade effects, carbon leakage

JEL Classification: D42, Q54, R48

Suggested Citation

Rosendahl, Knut Einar and Kverndokk, Snorre, The Effects of Transport Regulation on the Oil Market: Does Market Power Matter? (March 19, 2011). USAEE Working Paper No. 11-073. Available at SSRN: https://ssrn.com/abstract=1790379 or http://dx.doi.org/10.2139/ssrn.1790379

Knut Einar Rosendahl (Contact Author)

Norwegian University of Life Sciences ( email )

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Statistics Norway - Research Department ( email )

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Snorre Kverndokk

Ragnar Frisch Centre for Economic Research ( email )

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