The Effects of Transport Regulation on the Oil Market - Does Market Power Matter?
By Kverndokk, Snorre and Knut Einar Rosendahl
Discussion Papers No. 629
|| Popular instruments to regulate consumption of oil in the transport sector include fuel taxes, biofuel
requirements, and fuel efficiency. Their impacts on oil consumption and price vary. One important
factor is the market setting. We show that if market power is present in the oil market, the directions
of change in consumption and price may contrast those in a competitive market. As a result, the
market setting impacts not only the effectiveness of the policy instruments to reduce oil consumption,
but also terms of trade and carbon leakage. In particular, we show that under monopoly, reduced oil
consumption due to increased fuel efficiency will unambiguously increase the price of oil.
|| D42, Q54, R48
|| Transport regulations, oil market, monopoly, terms-of-trade effects, carbon leakage
3162 Petroleum industry research in economics and economic management |
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