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

Author

Listed:
  • 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.

Suggested Citation

  • David Bonilla & Tim Foxon, 2007. "Estimating demand for new car fuel economy in the UK 1970-2004 using a two-stage error correction model," Environmental Economy and Policy Research Working Papers 23.2007, University of Cambridge, Department of Land Economics, revised 2007.
  • Handle: RePEc:lnd:wpaper:200723
    as

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    File URL: http://www.landecon.cam.ac.uk/RePEc/pdf/200723.pdf
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    References listed on IDEAS

    as
    1. Jay T. Akridge & Thomas W. Hertel, 1986. "Multiproduct Cost Relationships for Retail Fertilizer Plants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(4), pages 928-938.
    2. Antonio Alvarez & Carlos Arias, 2003. "Diseconomies of Size with Fixed Managerial Ability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 134-142.
    3. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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