Fuel Efficiency Improvements - Feedback Mechanisms and Distributional Effects in the Oil Market

37 Pages Posted: 18 Sep 2015

See all articles by Finn Roar Aune

Finn Roar Aune

Statistics Norway - Research Department

Ann Christin Boeng

Statistics Norway

Snorre Kverndokk

Ragnar Frisch Centre for Economic Research

Lars Lindholt

Statistics Norway - Research Department

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Date Written: August 20, 2015

Abstract

We study the interactions between fuel efficiency improvements in the transport sector and the oil market, where the efficiency improvements are policy-induced in certain regions of the world. We are especially interested in feedback mechanisms of fuel efficiency such as the rebound effect, carbon leakages and the “green paradox”, but also the distributional effects via oil price changes for different regions, sectors and oil producers. An intertemporal numerical model of the international oil market is introduced, where OPEC-Core producers have market power. We find that the rebound effect has a noticeable effect on the transport sector, but also on other sectors through lower oil prices in the regions that introduce the policy. There is a small green paradox effect in the sense that oil consumption increases initially when the fuel efficiency measures are gradually implemented. Finally, there will be significant carbon leakages if the policy is not implemented in all regions, with leakage rates of 35 per cent or higher. Non-OPEC producers will suffer more than OPEC producers by fuel efficiency policies due to high production costs.

Keywords: fuel efficiency, transport, oil market, market power, distribution, feedback mechanisms

JEL Classification: D420, Q540, R480

Suggested Citation

Aune, Finn Roar and Boeng, Ann Christin and Kverndokk, Snorre and Lindholt, Lars and Rosendahl, Knut Einar, Fuel Efficiency Improvements - Feedback Mechanisms and Distributional Effects in the Oil Market (August 20, 2015). CESifo Working Paper Series No. 5478. Available at SSRN: https://ssrn.com/abstract=2661402

Finn Roar Aune

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway

Ann Christin Boeng

Statistics Norway ( email )

N-0033 Oslo
Norway

Snorre Kverndokk

Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0349 Oslo
Norway
+47 22958811 (Phone)
+47 22958825 (Fax)

HOME PAGE: http://www.frisch.uio.no/cv/snorrek_eng.html

Lars Lindholt

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway

Knut Einar Rosendahl (Contact Author)

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
Norway
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
+47 21094954 (Phone)
+47 21094963 (Fax)

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