Elasticities of fuel and traffic demand and the direct rebound effects: An econometric estimation in the case of Norway

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 −0.26 and 0.06 in the short run and −0.36 and 0.09 in the long run. For travel demand, the respective elasticities are −0.11 and 0.06 in the short run and −0.24 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.

[1]  D. Graham,et al.  The Demand for Automobile Fuel A Survey of Elasticities , 2002 .

[2]  Peter J. G. Pearson,et al.  The Long Run Demand for Lighting:Elasticities and Rebound Effects in Different Phases of Economic Development , 2012 .

[3]  S. Sorrell,et al.  The rebound effect: Microeconomic definitions, limitations and extensions , 2008 .

[4]  Oludele Akinloye Akinboade,et al.  The demand for gasoline in South Africa: An empirical analysis using co-integration techniques , 2008 .

[5]  S. Sorrell,et al.  Empirical estimates of the direct rebound effect: A review , 2009 .

[6]  C. Granger,et al.  Spurious regressions in econometrics , 1974 .

[7]  A. A. Weiss,et al.  Time series analysis of error-correction models , 2001 .

[8]  Bruno De Borger,et al.  The determinants of fuel use in the trucking industry - volume, fleet characteristics and the rebound effect , 2012 .

[9]  G. Maddala,et al.  Unit roots, cointegration, and structural change , 1998 .

[10]  Z. Wadud,et al.  A cointegration analysis of gasoline demand in the United States , 2009 .

[11]  John M. Rose,et al.  Forecasting automobile petrol demand in Australia: An evaluation of empirical models , 2010 .

[12]  M. Espey.  Gasoline demand revisited: an international meta-analysis of elasticities , 1998 .

[13]  P. Goodwin.  A REVIEW OF NEW DEMAND ELASTICITIES WITH SPECIAL REFERENCE TO SHORT AND LONG RUN EFFECTS OF PRICE CHANGES , 1992 .

[14]  S. Sene.  Estimating the demand for gasoline in developing countries: Senegal , 2012 .

[15]  Daniel J. Graham,et al.  An Analysis of Gasoline Demand Elasticities at National and Local Levels in Mexico , 2010 .

[16]  Thomas J. Rothenberg,et al.  Efficient Tests for an Autoregressive Unit Root , 1996 .

[17]  Molly Espey,et al.  Explaining the Variation in Elasticity Estimates of Gasoline Demand in the United States: A Meta-Analysis , 1996 .

[18]  C.-Y. Cynthia Lin,et al.  The Elasticity of Demand for Gasoline in China , 2012 .

[19]  D. Hendry,et al.  Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte-Carlo Evidence , 2009 .

[20]  Rodrigo Bueno,et al.  Short-run, long-run and cross elasticities of gasoline demand in Brazil , 2003 .

[21]  Thomas Sterner,et al.  ANALYSING GASOLINE DEMAND ELASTICITIES: A SURVEY , 1991 .

[22]  Fernando J.F. Matos,et al.  The rebound effect on road freight transport: Empirical evidence from Portugal , 2011 .

[23]  Ramakrishnan Ramanathan,et al.  Short- and long-run elasticities of gasoline demand in India: An empirical analysis using cointegration techniques , 1999 .

[24]  P. Goodwin,et al.  Elasticities of Road Traffic and Fuel Consumption with Respect to Price and Income: A Review , 2004 .

[25]  S. Glaister,et al.  Decomposing the determinants of road traffic demand , 2005 .

[26]  K. Small,et al.  Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect , 2007, Controlling Automobile Air Pollution.

[27]  H. Wang,et al.  An empirical study of direct rebound effect for passenger transport in urban China , 2012 .