Can personal gasoline permit trading be effective? An investigation into permit demand

Abstract

This study proposes a personal fuel permit trading scheme to limit the total consumption of motor fuels (including diesel and gasoline), thus reducing its environmental impact. We studied the effectiveness of this scheme by analyzing the permit demand of a benchmark gasoline-driven vehicle in transportation sector. A general utility optimization model is formulated and a Cobb-Douglas utility function is further assumed to analyze the response of permit demand to its price changes with the Slutsky decomposition of price effects. The results, when defined in economic terms, indicate that the permit demand of consumers in higher income groups are negatively related to permit price; permit demand are also negatively related to permit price for consumers in medium income groups, but with positive income effect; and the direct relationship between permit demand of lower income groups and the price is defined as a Giffen-good effect. That is, for those low income groups, when the permit price rises their demand for permits would also increase. Then a US household expenditure data is used to show illustrative results if a pilot of personal fuel permit trading scheme. Further, some regulations on critical parameters, such as permit allocation and permit prices in the policy design are proposed to make the scheme feasible in different income groups. Based on these results, implications, limitation and suggestions for future study are discussed.

Personal Carbon Trading: Trade-off and Complementarity Between In-home and Transport Related Emissions Reduction

“…However, Lockwood (2010 argues that PCTs may be less efficient compared to upstream carbon trading because of the transaction costs involved. Fan et al (2015aFan et al ( , 2015bFan et al ( , 2016 and Li et al (2017) investigate the theoretical properties of PCT scheme with respect to effectiveness, efficiency, stability of price and demand, etc. This stream of work primarily provides mathematical proofs of the suggestions made by other authors earlier.…”