Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
6780970 | Transportation Research Part A: Policy and Practice | 2016 | 13 Pages |
Abstract
We estimate the elasticities of fuel and travel demand with respect to fuel prices and income in the case of Norway. Furthermore, we derive the direct rebound effects that explain the degree to which a fuel price increase is “offset” in the form of greater fuel use and/or travel due to improvements in vehicle fuel efficiency. For this purpose, we use and compare two alternative econometric approaches: the error correction model (ECM) and the dynamic model. Our initial assumption is that one should not be indifferent with respect to the approach used to derive elasticities. The data used are for the period 1980-2011. Our results indicate the following: (1) the dynamic model fits the data better than the ECM model does; (2) the estimated elasticities of fuel demand with respect to price and income are â0.26 and 0.06 in the short run and â0.36 and 0.09 in the long run. For travel demand, the respective elasticities are â0.11 and 0.06 in the short run and â0.24 and 0.13 in the long run, implying inelastic demands for fuel and travel demand; and (3) rebound effects indicate that 0.26% and 0.06% of fuel savings as a result of fuel price increase will be offset in the form of more fuel use in the short run and in the long run, respectively, if fuel efficiency increases by 1%. Our policy recommendations are that policies should not be indifferent to the methods used to derive elasticities. We contend that it is crucial to seriously consider rebound effects in policy making because basic elasticity estimates exaggerate the impact of fuel price increases.
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Civil and Structural Engineering
Authors
James Odeck, Kjell Johansen,