Abstracts & Policy Panel Summaries


Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard

Gabriel Lade (Iowa State University), James Bushnell (University of California, Davis)

The Renewable Fuel Standard (RFS) is among the largest renewable energy mandates in the world. The policy is enforced using tradeable credits that implicitly subsidize biofuels and tax fossil fuels. The RFS relies on these taxes and subsidies to be passed through to consumers to stimulate demand for biofuels and decrease demand for gasoline and diesel. Using station-level prices for E85 (a high-ethanol blend fuel) from over 450 retail fuel stations, we show that pass-through of the ethanol subsidy is, on average, near complete. However, we find that full pass-through takes four to six weeks and that station-level pass-through rates exhibit substantial heterogeneity, with local market structure of stations influencing both the speed and overall level of pass-through.

Do Electric Vehicles Need Subsidies? A Comparison of Ownership Costs for C/H/EVs

Hanna Breetz (Arizona State University), Deborah Salon (Arizona State University)

Battery electric vehicles (BEVs) are an important pathway for decarbonizing and reducing petroleum dependence in the transport sector. Although one barrier to adoption is the higher purchase price, advocates suggest that savings in fuel and maintenance can make BEVs economical over time. This paper analyzes the relative costs of the most popular conventional, hybrid, and electric vehicles for 14 U.S. cities during a five-year period, 2011-2015. We found some spatial variation due to differences in subsidies, fuel prices, insurance and maintenance costs, depreciation rates, and vehicle miles traveled. Yet the BEV’s higher purchase price and rapid depreciation outweighed its fuel savings in nearly all cities. Under virtually all reasonable assumptions, federal and state incentives were critical for the electric vehicle to be cost competitive with the hybrid or conventional vehicles. Extensive sensitivity analyses highlight key parameters and assumptions.

Network Externality and Subsidy Structure in Two-Sided Markets: Evidence from EV Incentives

Katalin Springel (University of California, Berkeley)

In an effort to combat global warming and reduce emissions, governments across the world are implementing increasingly diverse incentives to expand the proportion of electric vehicles on the roads. Many of these policies provide financial support to lower the high upfront costs consumers face and build up the infrastructure of charging stations. There is little guidance theoretically and empirically on which governmental efforts work best to advance electric vehicle sales. I model the electric vehicle sector as a two-sided market with network externalities to show that subsidies are non-neutral and to determine which side of the market is more efficient to subsidize depending on key vehicle demand and charging station supply primitives. I use new, large-scale vehicle registry data from Norway to empirically estimate the impact that different subsidies have on electric vehicle adoption when network externalities are present. I present descriptive evidence to show that electric vehicle purchases are positively related to both consumer price and charging station subsidies. I then estimate a structural model of consumer vehicle choice and charging station entry, which incorporates flexible substitution patterns and allows me to analyze out-of-sample predictions of electric vehicle sales. In particular, the counterfactuals compare the impact of direct purchasing price subsidies to the impact of charging station subsidies. I find that between 2010 and 2015 every 100 million Norwegian kroner (around 12.39 million USD) spent on station subsidies alone resulted in 835 additional electric vehicle purchases compared to a counterfactual in which there are no subsidies on either side of the market. The same amount spent on price subsidies led to only an additional 387 electric vehicles being sold compared to a simulated scenario where there were no electric vehicle incentives. However, the relation inverts with increased spending, as the impact of station subsidies on electric vehicle purchases tapers off faster.

How Much Do Consumers Value Fuel Economy and Performance? Evidence from Technology Adoption

Benjamin Leard (Resources for the Future), Joshua Linn (Resources for the Future), Yichen Christy Zhou (Resources for the Future and Clemson University)

The recent literature has shown that tighter passenger vehicle fuel economy standards cause manufacturers to trade vehicle performance for fuel economy. This paper is the first to evaluate the welfare consequences of these changes by estimating consumer valuation of higher fuel economy and foregone performance. Using a unique data set and novel statistical techniques to account for the endogeneity of vehicle attributes, we estimate the welfare cost of foregone performance to be approximately equal to expected fuel savings benefits. Therefore, the recently tightened standards have had approximately zero net effect on private consumer welfare, contrasting with the analysis by the U.S. regulatory agencies that does not include lower performance and suggests large consumer benefits.

Consumer Willingness to Pay for Vehicle Attributes: What Do We Know?

David Greene (University of Tennessee, Knoxville), Anushah Hossain (University of California, Berkeley), Julia Hofmann (RTI International), Gloria Helfand (U.S. Environmental Protection Agency), Robert Beach (RTI International)

As standards for vehicle greenhouse gas emissions and fuel economy have become more stringent, concerns have arisen that the incorporation of fuel-saving technologies may entail tradeoffs with other vehicle attributes important to consumers such as safety, comfort, or performance. Assessing the effects of these tradeoffs on consumer welfare requires estimates of both the degree of the tradeoffs, and consumer willingness to pay (WTP) for the foregone benefits. This paper focuses on WTP estimates. We first conduct a detailed review and synthesis of literature that presents or can be used to calculate WTP for vehicle attributes. We identified 52 U.S.-focused papers published between 1995 and 2015 (with one exception) with sufficient data to calculate WTP values. We identify 146 individual characteristics valued by the literature, which we consolidate into the 15 general categories of comfort, fuel availability, fuel costs, fuel type, incentives, model availability, non-fuel operating costs, performance, pollution, prestige, range, reliability, safety, size, and vehicle type. We next calculate WTP values for those characteristics based on the coefficients and data reported in the papers. In addition to mean WTP estimates, we present uncertainty estimates around each WTP value, based either on standard errors of the estimated coefficients or the standard deviations in random coefficient models. Our findings suggest large variation in WTP values for vehicle characteristics, both within and across studies. We further analyze factors that may contribute to this large variation via analysis of variance (ANOVA) and meta-analysis of the fuel economy and acceleration WTP values. This variation results in part because of methodological choices involved in estimating how attributes affect consumer vehicle choices, such as the kind of data used, the choice of statistical method, or whether instruments are used in the regressions. Nevertheless, most of the variation in results remains unexplained. These results have implications not only for the use of WTP estimates in policy analysis, but also for assessing the validity of vehicle demand models.

The Effect of Fuel Economy Standards on Vehicle Weight Dispersion and Accident Fatalities

Antonio Bento (University of Southern California), Kenneth Gillingham (Yale University), Kevin Roth (University of California, Irvine)

The firm response to regulation is seldom as controversial as in the context of fuel economy standards, a dominant policy to reduce emissions from vehicles worldwide. It has long been argued that such standards lead to vehicle weight changes that increase accident fatalities. Using unconditional quantile regression, we are the first to document the effect of the Corporate Average Fuel Economy (CAFE) standards on the vehicle weight distribution. We find that on net CAFE reduced fatalities, with lowered mean weight dominating increased dispersion. When monetized, this effect suggests positive net benefits from CAFE even with no undervaluation of fuel economy.

Policy Panel Summaries

Panel Discussion A: Economics of Emerging Mobility Systems  

As information technology (IT) plays an ever-increasing role in transportation, the options for lower cost, more convenient personal mobility and more efficient goods movement are proliferating rapidly. New services continue to grow, including app-based taxi and car sharing services as well as sophisticated on-demand goods delivery. Greater disruptions will occur through connected and automated vehicle (CAV) technologies. Economic factors will determine which such systems become widespread, how they are used, the mix and scale of travel activity, and the resulting impacts on energy demand and emissions. The economics will in turn be shaped by the societal response to the new options. Which modes of transportation will be chosen in various locations? How will automated safety features already being introduced influence the trajectory of the mobility transition? How will public choices affect the way the transportation system is organized? Such factors must be weighed in order to answer key economic questions, including those regarding capital expenditure requirements, financing mechanisms, the roles of public vs. private investment, and how costs are recovered from and experienced by consumers and other system users. What will be the macroeconomic impacts, including GDP growth and job creation as well as income and geographic distributional effects? Finally, can economically efficient policies be developed for managing the energy and emissions impacts of the new mobility systems that emerge?

Panel Discussion B:  Infrastructure Finance for Existing and Emerging Mobility Systems

The federal road legislation of the 1950s, which built the interstate highway system and established a trust fund for financing transportation infrastructure through fuel taxes, was the historical high-water mark of U.S. political willingness to make major investments in non-military public goods. For the past several decades, tax revenues have fallen ever more behind in their ability to maintain the country’s infrastructure, let alone support major investments for building a new cyber-physical infrastructure for the connected and highly automated mobility systems now under development. Vehicle efficiency gains and lower tax collections for AFVs will worsen the financial erosion due to the failure to keep up with inflation and growth of the existing system. How will society react to this financial conundrum even as it seeks to embrace the convenience, cost savings and safety benefits of new mobility options? Questions include how consumer response to features already being introduced will influence the path going forward; which mobility modes will be used in which locations; and the resulting impacts on how the transportation system is organized. In light of the societal and economic factors: What options will be feasible for funding transportation infrastructure? To what extent can new technologies be financed privately, through highly leveraged public-private partnerships, or by using mobility-as-a-service business models handled by the telecommunication and internet firms increasingly involved in the sector?