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The Producer Surplus Associated with Gasolne Fuel Use in the United States

Author

Listed:
  • Sun, Yongling
  • Delucchi, Mark A.
  • Lawell, C.-Y. Cynthia L.
  • Ogden, Joan M.

Abstract

Estimating the producer surplus – the revenue above the average long-run cost – is an important part of social cost-benefit analyses of changes in petroleum use. This paper estimates the producer surplus associated with changes in gasoline fuel use in the United States, and then applies the estimates of producer surplus to two kinds of social cost-benefit analyses related to petroleum use: (1) estimating the wealth transfer from consumers to producers as a result of policies that affect oil use and oil imports to the US, and (2) comparing the actual average cost of gasoline with the average cost of environmentally superior alternatives to gasoline, such as hydrogen. Our results show that a 50% reduction in gasoline use in the US in 2004 would have saved the US $72 billion in producer surplus payments to foreign oil producers. Applying our estimates to the comparison of the social lifetime cost of hydrogen vehicles versus gasoline vehicles, we find that inconsistently counting producer surplus from a US national perspective while counting climate change damages from a global perspective can overstate the present value lifetime costs of gasoline vehicles by $2,200 to $9,800 per vehicle.

Suggested Citation

  • Sun, Yongling & Delucchi, Mark A. & Lawell, C.-Y. Cynthia L. & Ogden, Joan M., 2019. "The Producer Surplus Associated with Gasolne Fuel Use in the United States," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt0591r5x3, Institute of Transportation Studies, UC Berkeley.
  • Handle: RePEc:cdl:itsrrp:qt0591r5x3
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    References listed on IDEAS

    as
    1. Aguilera, Roberto F., 2014. "Production costs of global conventional and unconventional petroleum," Energy Policy, Elsevier, vol. 64(C), pages 134-140.
    2. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-1234, December.
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    More about this item

    Keywords

    Social and Behavioral Sciences; oil; marginal costs; producer surplus; gasoline; wealth transfer; drilling costs; exploratory wells; development wells;
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