Post on 28-Dec-2015
transcript
Autos in Econ 331b
Agenda
Wednesday: AutosSection: Misc and oil premium
Monday: Continue autos and rebound effect
Wednesday: Behavioral energy economicsPset 3 due
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Overview of energy system
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Energy resources
(oil in ground,…)
Capital, labor, …
Energy fuels (gasoline,
electricity, …)
Capital, labor, …
Energy goods and services (passenger miles, warm house, hot coffee, …
Non-energy goods and services
Utility:U(c1, c1, …, cn)
Market boundary
External effects
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Energy resources
(oil in ground,…)
Capital, labor, …
Energy fuels (gasoline,
electricity, …)
Capital, labor, …
Energy goods and services (passenger miles, warm house, hot coffee, …
Non-energy goods and services
Utility:U(c1, c1, …, cn); externalities(-)]
Production externalities: SO2, CO2, …
Consumption externalities:
congestion, smog, …
Market boundary
Pollution
MB, MC
Private MC
MB
Market Pollution 5
Pollution
MB, MC
Private MC
MB
Market PollutionEfficient Pollution
Social MC
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Damages and taxes for gasoline use
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0
50
100
150
200
250
Pretax Taxes Externalities
Cost
s (ce
nts p
er ga
llon)
Pollution, health
Global warming
What are current estimates for US?
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Damages (cents/gallon, US light autos)
Conventional health 29GHG at $30/tCO2 32Total 61Gasoline taxes -46Net 15
Source: NAS, The Hidden Cost of Energy.
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Generic Strategies for Policies
A. Taxes on “bads” Carbon tax on CO2 emissions; taxes on ozone-depleting
chemics
B. Subsidies on “goods”1. Subsidies for private actions (usually tax credits, roll-in)
“Incentives” for vehicles, electricity, non-oil fuels, ethanol, …
2. Federal expendituresFederal energy R&D, renewable electric, advanced
nuclear
C. Regulations that are implicit taxes or redistribute private costs1. Efficiency standards
Vehicle (CAFE) standards, appliance standards
2. Misc. market regulationsFeed-in tariffs, mandate market shares for renewables (ethanol)
D. Innovational strategies (particularly important for long run)Key problem here is that there is a double-externality (pollution and knowledge).
Pollution
MB, MC
Private MC
MB
Efficient Pollution= Market
Social MC
Pollution regulation
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Regulation
Pollution
MB, MC
Private MC
MB
Efficient Pollution= Market
Social MC
Pigovian tax
Private MC+tax
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Taxes
Current approach in USAside from gasoline taxes, virtually no energy taxes.Instead, use regulation of new energy-using capitalRationale:
- to avoid taxation and fiscal impacts (political)- to induce innovation on energy technology (questionable economics)
Questions:- is it an efficient way to reduce energy consumption?- why do we override consumer/producer preferences (“lightbulb socialism”?)- rebound effect.
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DOE regulations on capital equipment
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Residential Products Commercial Equipment
Battery Chargers & External Power Supplies ASHRAE Products
Ceiling Fans & Ceiling Fan Light Kits Automatic Ice Makers
Central Air Conditioners & Heat Pumps Clothes Washers
Clothes Dryers Distribution Transformers
Clothes Washers Electric Motors
Cooking Products Furnaces & Boilers
Dehumidifiers High-Intensity Discharge Lamps
Direct Heating Equipment Metal Halide Lamp Fixtures
Dishwashers Packaged Terminal Air Conditioners & Heat Pumps
Furnace Fans Refrigerated Beverage Vending Machines
Furnaces and Boilers Refrigeration Equipment
Fluorescent & Incandescent Lamps Small Electric Motors
Fluorescent Lamp Ballasts Unitary Air Conditioners & Heat Pumps
Plumbing Products Walk-In Coolers and Walk-In Freezers
Pool Heaters Water Heaters
Refrigerators & Freezers
Room Air-conditioners
Small Duct, High Velocity Air Conditioners
Television Sets
Torchieres
Water Heaters
US Corporate Average Fuel Efficiency
• “Corporate Average Fuel Economy (CAFE) is the sales weighted average fuel economy, expressed in miles per gallon (mpg), of a manufacturer’s fleet of passenger cars or light trucks with a gross vehicle weight rating (GVWR) of 8,500 lbs. or less, manufactured for sale in the United States, for any given model year.”
• “Congress specified that CAFE standards must be set at the maximum feasible level. Congress provided that the Department’s determinations of maximum feasible level be made in consideration of four factors: (1) technological feasibility; (2) economic practicability; (3) effect of other standards on fuel economy; and (4) need of the nation to conserve energy.
• Separates cars from “light trucks” (the growth the SUV culture)• Averaging across corporate fleet• Harmonic mean
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US standards
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Global standards
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Gasoline (gpm)
gpm
K Excess cost of gasoline reduction
Simple economics of efficiency standards
0
0
1
1
2
2
Example of savings from higher mpg with diesel
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Jetta
SEL automatic 22,800.00 27.5 mpg
TDI Auto diesel auto 24,865.00 36.0 mpg
Cost of diesel 2,065.00
Cost of capital 15 % per year
Annual cost 309.75 $ per year
Annual gasoline at 12,000 miles per year
Gasoline 436 gal per year
Diesel 349 gal per year
Difference 87 gal per year
Cost per gallon 3.55 $ per gallon saved
Estimated cost of improvement, compact car
19Nat. Acad. Sci., Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,2002.
Jetta, 2011
Cost to reduce gasoline
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12,000 miles per year and 5% discount, 10% depreciation
Initial capital cost0 1000 2000 3000
Subcompact 2.27 2.78 naCompact 1.79 3.13 naMid-sized 1.92 3.57 3.57 Full-sized 1.56 3.13 4.17
Note: Calculated as [cost per year]/[gallons saved per year].
Important question raised by behavioral economics: Are consumers rational in their choices of gasoline mileage? We return to next week.
Critique of CAFE Standards
1. Ineffective because so far from target of policy (mpg rather than gasoline.
2. Ineffective because of “rebound effect” which arises when target wrong input (capital instead of fuel).
3. Ineffective because covers such a small fraction of market (automobiles in global carbon market).
4. Not cost-beneficial if already have energy taxes that cover the externality.
5. Blunt instrument that leads to SUV culture.
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