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Rationalizing Transport Fuels Pricing Policies and Effects on Global Fuel Consumption, Emissions Government Revenues and Welfare

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  • Yahya F. Anouti

    ()
    (Division of Economics and Business, Colorado School of Mines)

  • Carol A. Dahl

    ()
    (Division of Economics and Business, Colorado School of Mines)

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    Abstract

    Today, a confluence of factors, such as growing concerns about associated consumption externalities and socioeconomic pressures, is building the momentum towards reducing fossil fuel consumption for road transport and rationalizing prices to reflect direct, indirect and externality costs. While limited country specific work has been done, considering optimal transport fuel prices, (e.g. Parry 2012), we have found no attempts to do so with the breadth and scope of our analysis. Thus in this paper, we make three main contributions. First, we survey policies aimed at reducing transport fuel consumption. Out of these policies, we chose fiscal instruments for our extensive quantitative analysis carried out in a supply and demand framework for 123 countries. Second, we quantify the rationalized cost of transport fuels to reflect the direct costs (production), indirect costs (road maintenance), and negative externalities (climate change, local pollutants, traffic accidents and congestion). Finally, we measure the change in demand, environmental emissions, government revenues and welfare induced by successively phasing in our three cost categories. By rationalizing prices, we estimate that total demand for gasoline could be reduced by 8.5 percent and that of diesel by 5.7 percent. This would lead to not only reduction in associated negative externalities, but also generate an estimated $400 billion in revenues to governments.

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    File URL: http://econbus.mines.edu/working-papers/wp201401.pdf
    File Function: First version, 2014
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    Bibliographic Info

    Paper provided by Colorado School of Mines, Division of Economics and Business in its series Working Papers with number 2014-01.

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    Length: 40 pages
    Date of creation: Feb 2014
    Date of revision:
    Handle: RePEc:mns:wpaper:wp201401

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    Postal: Golden, Colorado 80401
    Phone: (303) 273-3480
    Fax: (303) 273-3416
    Web page: http://econbus.mines.edu/
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    Keywords: transport policy; energy demand; subsidy; externalities; gasoline; diesel;

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    1. de Freitas, Luciano Charlita & Kaneko, Shinji, 2011. "Ethanol demand in Brazil: Regional approach," Energy Policy, Elsevier, vol. 39(5), pages 2289-2298, May.
    2. Nicholas Z. Muller & Robert Mendelsohn, 2012. "Efficient Pollution Regulation: Getting the Prices Right: Corrigendum (Mortality Rate Update)," American Economic Review, American Economic Association, vol. 102(1), pages 613-16, February.
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    7. Parry, Ian W.H., 2011. "Reforming the Tax System to Promote Environmental Objectives: An Application to Mauritius," Discussion Papers dp-11-20, Resources For the Future.
    8. Dahl, Carol A., 2012. "Measuring global gasoline and diesel price and income elasticities," Energy Policy, Elsevier, vol. 41(C), pages 2-13.
    9. William D. Nordhaus, 1993. "Reflections on the Economics of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 11-25, Fall.
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    12. W. Viscusi, 2010. "The heterogeneity of the value of statistical life: Introduction and overview," Journal of Risk and Uncertainty, Springer, vol. 40(1), pages 1-13, February.
    13. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
    14. Kip Viscusi, W. & Aldy, Joseph E., 2007. "Labor market estimates of the senior discount for the value of statistical life," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 377-392, May.
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