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The effects of transport regulation on the oil market. Does market power matter?

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Abstract

Popular instruments to regulate consumption of oil in the transport sector include fuel taxes, biofuel requirements, and fuel efficiency. Their impacts on oil consumption and price vary. One important factor is the market setting. We show that if market power is present in the oil market, the directions of change in consumption and price may contrast those in a competitive market. As a result, the market setting impacts not only the effectiveness of the policy instruments to reduce oil consumption, but also terms of trade and carbon leakage. In particular, we show that under monopoly, reduced oil consumption due to increased fuel efficiency will unambiguously increase the price of oil.

Suggested Citation

  • Snorre Kverndokk & Knut Einar Rosendahl, 2010. "The effects of transport regulation on the oil market. Does market power matter?," Discussion Papers 629, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:629
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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp629.pdf
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    References listed on IDEAS

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    1. Jonathan E. Hughes & Christopher R. Knittel & Daniel Sperling, 2008. "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," The Energy Journal, International Association for Energy Economics, vol. 29(1), pages 113-134.
    2. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," NBER Working Papers 13454, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Mads Greaker & Michael Hoel & Knut Einar Rosendahl, 2014. "Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, pages 337-363.
    2. Christoph Bohringer, Knut Einar Rosendahl, and Jan Schneider, 2014. "Unilateral Climate Policy: Can OPEC Resolve the Leakage Problem?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).

    More about this item

    Keywords

    Transport regulations; oil market; monopoly; terms-of-trade effects; carbon leakage;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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