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Autos in Econ 331b
Agenda
(2/1) Monday: Unified oil market
Wednesday: Autos
Friday: Review session on Hotelling and other (Ali)
(2/8) Monday: The oil premium
Problem set due
Wednesday: Rebound and finale on energy policy
Friday: Review session if necessary
(2/15) Begin climate science
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Reasons for Regulation of Oil-Using Capital
1. Externalities
-
Local pollution*
Climate change*
Congestion*
Road accidents*
2. Macroeconomic/trade
-
Impact of oil price on business cycle*
Optimal tariff*
Political/military*
3. Imperfect decisionmaking
-
Discounting*
Split incentives*
Poor information*
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Inefficient and efficient
pollution
MB, MC
Social MC
Private MC
MB
Pollution
Efficient Pollution
Market Pollution
MB, MC
Pollution
regulation
Social MC
Private MC
MB
Pollution
Efficient Pollution= Market
MB, MC
Social MC
Private MC+tax
Pigovian tax
Private MC
MB
Pollution
Efficient Pollution= Market
Heavy energy/environment hitters
in the Obama administration
Economics and auto czar:
Larry Summers
Energy: Steven Chu
Environment: Carol Browner
Regulation: Cass Sunstein
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Budget/economics: Peter Orszag
First-best policy options
Market failure
First-best instrument
Externalities
Local pollution
Climate change
Locally determined regulations or fees
Global carbon tax
Congestion
Very complicated time and location
specific congestion fees
Very complicated engineering, training,
DUI, etc.
Road accidents
Macroeconomic/trade/political
Impact of oil price on
business cycle
Optimal tariff
Strategic oil reserve and variable oil taxes
Political/military
High tax on oil use plus complicated
Nuclear proliferation
?
Tax on oil, probably global
Imperfect decisionmaking
Discounting
Remove capital market imperfections
Split incentives
"Meter" all uses (including Yale students!);
peak-load pricing
Provide information stickers
Poor information
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Inefficiencies with using
second-best energy-regulatory policies
1. Ineffective because so far from target of policy (example
of CAFE standards and congestion).
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.
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We are heading into a major period of energy/climate-change
regulations. Here are some of the major economic issues:
1. Rebound effect
•
•
Energy efficiency standards affect the energy-intensity of new capital
goods
Because they lower the MC, they may increase utilization, leading to
the rebound effect.
2. Oil premium
•
•
Increase oil use leads to higher oil world price
This leads to higher total imports costs and macro volatility
3. Public finance issues
•
•
•
Regulation and energy taxes lead to higher prices
These lead to dead-weight loss when P > MC
This leads to “double dividend hypothesis” and to concern about
using standards (with no revenues) instead of taxes (with revenues
that can lower other taxes)
4. Cost of capital/discounting (later on this one)
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