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Estimating demand for new car fuel economy in the UK 1970-2004 using a two-stage error correction model

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  • David Bonilla

    ()
    (Department of Land Economy, University of Cambridge, UK)

  • Tim Foxon

    (Department of Land Economy, University of Cambridge, UK)

Abstract

Over the past 30 years, governments have sought to stimulate improvements in new car fuel economy to contribute to air quality, energy security and climate change goals. We analyse the demand for new car fuel economy in the UK using a two-stage econometric model to investigate the drivers of this demand in the short and long run over the period 1970-2004.We find that higher incomes and long run price changes are the main drivers to achieve improvements in fuel economy particularly for gasoline cars; and that new car fuel economy changes were scarcely induced by the Voluntary Agreement on CO2 emissions reductions adopted in the 1990s. We find that the demand for fuel economy is price inelastic for both fuels, in agreement with other studies. Our calculated long run income elasticity (gasoline with -0.31 and diesel fuels with -0.20) values are above the range of international studies for gasoline but within the range for diesel.

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Bibliographic Info

Paper provided by University of Cambridge, Department of Land Economics in its series Environmental Economy and Policy Research Working Papers with number 23.2007.

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Date of creation: 2007
Date of revision: 2007
Handle: RePEc:lnd:wpaper:200723

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Keywords: fuel economy policy and standards; energy policy; energy demand; resource conservation; transport policy.;

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