Fuel Efficiency Improvements: Feedback Mechanisms and Distributional Effects in the Oil Market

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We study the interactions between fuel efficiency improvements in the transport sector and the oil market, where the efficiency improvements are policy-induced in certain regions of the world. We are especially interested in feedback mechanisms of fuel efficiency such as the rebound effect, carbon leakages and the "green paradox", but also the distributional effects via oil price changes for different regions, sectors and oil producers. An intertemporal numerical model of the international oil market is introduced, where OPEC-Core producers have market power. We find that the rebound effect has a noticeable effect on the transport sector, but also on other sectors through lower oil prices in the regions that introduce the policy. There is a small green paradox effect in the sense that oil consumption increases initially when the fuel efficiency measures are gradually implemented. Finally, there will be significant carbon leakages if the policy is not implemented in all regions, with leakage rates of 35 per cent or higher. Non-OPEC producers will suffer more than OPEC producers by fuel efficiency policies due to high production costs. Terms of use: Documents inJEL-Code: D420, Q540, R480.

Frontiers of Climate Change Economics

“…First, Kverndokk et al (2017) analyse carbon leakage and Green Paradox effects induced by energy efficiency improvements. Second, Gronwald et al (2017) focus on the effects of the existence of opposition to increasing renewables capacity beyond its current level.…”

“…The article of Kverndokk et al (2017) in this issue examines rebound (to be defined below), carbon leakage and Green Paradox effects resulting from policy-induced energy efficiency improvements. Kverndokk et al (2017) construct a detailed, numerical model of the international oil market, named Petrol2.…”

“…Kverndokk et al (2017) construct a detailed, numerical model of the international oil market, named Petrol2. Demand for energy comes from seven regions with each seven different demand sectors and the model distinguishes six different energy goods: oil, gas, electricity, coal, biomass and biofuels.…”

“…The cartel consists of the 'OPEC-Core' countries Saudi Arabia, Kuwait, United Arab Emirates and Qatar, which belong to the Gulf Cooperation Council and have larger oil reserves and lower extraction costs than most other OPEC countries. Kverndokk et al (2017) calibrate and simulate the model to analyse the 'feedback' effects of different scenarios of energy efficiency improvement, which they decompose into a direct and indirect rebound effect, a carbon leakage effect, and a Green Paradox effect. The rebound effects emerge within the sector that experiences the efficiency improvement.…”

“…In this Special Issue to mark the completion of an Advanced Instigator Grant of the European Research Council, Kverndokk et al (2017), Gronwald et al (2017) and Mulatu (2017) deal with and add new insights into these two key reasons for frustration of first-best climate policies. These papers are discussed and put in context in Sect.…”