autos in econ 331b. agenda (2/1) monday: unified oil market wednesday: autos friday: review session...
TRANSCRIPT
Agenda
(2/1) Monday: Unified oil marketWednesday: AutosFriday: Review session on Hotelling and other (Ali)
(2/8) Monday: The oil premium Problem set due
Wednesday: Rebound and finale on energy policyFriday: Review session if necessary
(2/15) Begin climate science
2
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*
3
Pollution
MB, MC
Private MC
MB
Market PollutionEfficient Pollution
Social MC
Inefficient and efficient pollution
Heavy energy/environment hitters in the Obama administration
7
Energy: Steven Chu
Environment: Carol Browner
Regulation: Cass Sunstein
Budget/economics: Peter Orszag
Economics and auto czar: Larry Summers
First-best policy options
8
Market failure First-best instrument
Externalities
Local pollution Locally determined regulations or feesClimate change Global carbon tax
Congestion Very complicated time and location specific congestion fees
Road accidents Very complicated engineering, training, DUI, etc.
Macroeconomic/trade/political
Impact of oil price on business cycle
Strategic oil reserve and variable oil taxes
Optimal tariff Tax on oil, probably global
Political/ military High tax on oil use plus complicated
Nuclear proliferation ?
Imperfect decisionmakingDiscounting Remove capital market imperfections
Split incentives "Meter" all uses (including Yale students!); peak-load pricing
Poor information Provide information stickers
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) 10