Estimating fuel demand elasticities to evaluate CO2 emissions: Panel data evidence for the Lisbon Metropolitan Area

This paper estimates fuel demand models for the Lisbon Metropolitan Area (AML) and uses the demand elasticities obtained to predict future levels of road transport CO₂ greenhouse gas emissions. Data for the municipalities constituting the AML and the period 1993–2010 are analysed using static and dynamic panel data models to measure the relative importance of fuel price, income, vehicle stock, the price of public transport, and the availability of urban and suburban rail networks on fuel demand. To the best of our knowledge, this is the first study in the Portuguese context to produce fuel demand elasticities for a specific metropolitan area, as opposed to the estimation of country-level aggregate elasticities. Our findings indicate that the elasticity of fuel demand with respect to fuel price ranges between −0.48 and −0.72 in the short run and between −1.19 and −1.82 in the long run. Income elasticities are found to range between 0.51 and 0.54 in the short run and between 1.26 and 1.37 in the long run. The elasticity of fuel demand with respect to vehicle stock (keeping population constant) is 0.57 in the short run and 1.43 in the long run. There is only weak evidence of a reduction in fuel demand as a result of a decrease in the price of public transport, and no effect of greater availability of rail networks. Based on the elasticities estimated, we predict road transport CO₂ emissions for the AML according to different macroeconomic scenarios. The results indicate that the emissions target is only achieved in the scenario of poor economic performance. In the presence of medium and strong economic growth, fuel prices would need to increase by about 7% and 11% per year respectively in order to meet the emissions target.     

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.     

Asymmetry in transport fuel demand: Evidence from household level data

Models for gasoline demand for transportation activities generally assume that demand is perfectly reversible with respect to gasoline price (and income). The small literature which relaxes the reversibility assumption in gasoline demand argues technological fixation leads to this asymmetry and utilizes aggregate time-series model to find evidence in favour of asymmetry. In this research it is suggested that there could also be behavioural factors behind this asymmetric response, possibly due to the loss aversion nature of human beings as described in the prospect theory. For the first time, household level data was used to understand asymmetry in gasoline demand in response to changes in gasoline price and income. There was statistical evidence that gasoline price and income both can induce asymmetric changes in gasoline demand among households. Specifically, elasticity with respect to rising prices and falling income is larger than the elasticity with respect to falling prices and rising income respectively, which is consistent with loss aversion in gasoline purchase behaviour. There was also some evidence of heterogeneity in the asymmetric responses between urban and rural households. The results have implications for transport-related energy tax policies or subsidies, while the method can be applied directly for non-energy goods as well.     

The asymmetric effects of income and fuel price on air transport demand

Forecasts of passenger demand are an important parameter for aviation planners. Air transport demand models typically assume a perfectly reversible impact of the demand drivers. However, there are reasons to believe that the impacts of some of the demand drivers such as fuel price or income on air transport demand may not be perfectly reversible. Two types of imperfect reversibility, namely asymmetry and hysteresis, are possible. Asymmetry refers to the differences in the demand impacts of a rising price or income from that of a falling price or income. Hysteresis refers to the dependence of the impacts of changing price or income on previous history, especially on previous maximum price or income. We use US time series data and decompose each of fuel price and income into three component series to develop an econometric model for air transport demand that is capable of capturing the potential imperfectly reversible relationships and test for the presence or absence of reversibility. We find statistical evidence of asymmetry and hysteresis – for both, prices and income – in air transport demand. Implications for policy and practice are then discussed.     

Meta-analysis of public transport demand

The present study uses meta-regression in order to explain the wide variation in elasticity estimates obtained in previous demand studies, and provide summaries of several bus demand elasticities.One important finding as to the price elasticity is that the often cited rule of thumb of −0.3 holds good if quality of service represented by vehicle-kilometres is treated as an exogenous variable, but not when it is treated as endogenous.Based on the results it is recommended that demand models should include car ownership, price of petrol, own price, income and some measure of service among the explanatory variables and that the service variable should be treated as endogenous.In previous meta-studies in this field focus has been on own price elasticity only while this study also includes elasticities with respect to, level of service, income, price of petrol and car ownership. The short run for the US are found to be −0.59, 1.05, −0.62, 0.4 and −1.48 respectively.     

The use of a hazard-based duration model for imputation of missing personal income data

This paper suggests using a proportional hazard model to predict personal income, for the purpose of imputing missing income data in household travel surveys. The model has a hazard function that comprises two multiplicative components: (1) a non-parametric baseline hazard function that is dependent only on the income level and (2) a function that is dependent only on the other personal attributes of the survey respondents (excluding income). To estimate and validate the model, data is drawn from a travel characteristics survey conducted in Hong Kong in year 2001. The model is found to have a much higher accuracy when compared with a conventional ordered probit model based on the assumption that the logarithm of income is normally distributed.

Estimating flight-level price elasticities using online airline data: A first step toward integrating pricing,demand, and revenue optimization

We estimate flight-level price elasticities using a database of online prices and seat map displays. In contrast to market-level and route-level elasticities reported in the literature, flight-level elasticities can forecast responses in demand due to day-to-day price fluctuations. Knowing how elasticities vary by flight and booking characteristics and in response to competitors’ pricing actions allows airlines to design better promotions. It also allows policy makers the ability to evaluate the impacts of proposed tax increases or time-of-day congestion pricing policies. Our elasticity results show how airlines can design optimal promotions by considering not only which departure dates should be targeted, but also which days of the week customers should be allowed to purchase. Additionally, we show how elasticities can be used by carriers to strategically match a subset of their competitors’ sale fares. Methodologically, we use an approach that corrects for price endogeneity; failure to do so results in biased estimates and incorrect pricing recommendations. Using an instrumental variable approach to address this problem we find a set of valid instruments that can be used in future studies of air travel demand. We conclude by describing how our approach contributes to the literature, by offering an approach to estimate flight-level demand elasticities that the research community needs as an input to more advanced optimization models that integrate demand forecasting, price optimization, and revenue optimization models.     

Deregulating direct flights across the Taiwan Strait: The transformation of Eastern Asian air transport market and network

Over the past decades Hong Kong has been successfully playing a role as a gateway to China. Since 1988, it has also been the most important hub between Taiwan and China. Over 5 million passengers travelled between Taipei and Hong Kong in 1997, making the link the busiest in the world's international air links and contributing one-sixth of the passengers to Hong Kong airport, which before 1997 had the most international passengers in Asia. In the foreseeable future Taiwan will possibly start some direct services to China; the air link between Hong Kong and Taipei will then compete with many links across Taiwan Strait. These changes may cause the transformation of the market and network structure in eastern Asia. Niches of specific airlines and airports will disappear. This paper examines the issues of possible changes in eastern Asian air transport market: the current market environment, the problems for direct flights across Taiwan Strait, the possible links between Taiwan and China, the future role of Hong Kong, and the market structure in the future.     

Does the income elasticity of road traffic depend on the source of income?

An extensive body of literature addresses the income elasticity of road traffic, in which income is typically treated as a homogenous quantity. Here we report evidence of heterogeneity in cross-sectional estimates of the elasticity of vehicle-kilometres of travel (VKT) with respect to income, when household income is disaggregated on the basis of income source.The results are generally intuitive, and show that the cross-sectional income elasticity of road traffic is not homogeneous as is typically specified in transport planning models. We show that in a number of circumstances the cross-sectional elasticity with respect to aggregate household income is of the opposite sign in comparison to more refined estimates of elasticity disaggregated by income source. If further research confirms that the elasticities we report here are causal in nature, neglecting the elemental effects could result in misleading results affecting practical infrastructure-investment and policy decisions, particularly as the mix of income sources shifts (e.g. if, as society ages, pension income increases as a share of all income).These results are of interest to both researchers and forecasters of travel demand, as well as designers of future travel survey instruments; the latter group must decide how to generate data about respondents’ income. Current expert guidance is to collect a single estimate of aggregate income at the household level. Future travel survey design choices will bound the analyses that can be supported by the resulting survey data, and therefore methodological research to re-visit the trade-offs associated with such choices is warranted.     

Impact of fuel price on vehicle miles traveled (VMT): do the poor respond in the same way as the rich?

The effects of fuel price on travel demand for different income groups reveal the choices and constraints they are faced with. The first purpose of this study is to understand these underlying choices and constraints by examining the variation of fuel price elasticity of vehicle miles travelled (VMT) across income groups. On the other hand, the rebound effect—increase in VMT as a result of improvement in fuel efficiency may offset the negative effect of fuel price on VMT. The second purpose of this study is to compare the relative magnitudes of the fuel price elasticity of VMT and the rebound effect. A system of structural equations with VMT and fuel efficiency (MPG, miles per gallon) as endogenous variables is estimated for households at different income levels from 2009 National Household Travel Survey. Higher income households show greater fuel price elasticity than lower income households. Fuel price elasticities are found to be ?0.41 and ?0.35 for the two highest income groups, while an elasticity of ?0.24 for the lowest income group is identified. The rebound effect is found to be only significant for the lowest income households as 0.7. These findings suggest the potential ability of using fuel price as a tool to affect VMT. The study results also suggest possible negative consequences faced by lower income households given an increase in fuel price and call for more studies in this area.     

On the income elasticity of the value of travel time

Transport infrastructure is long-term and in appraisal it is necessary to value travel time savings for future years. This requires knowing how the value of time (VTT) will develop over time as incomes grow. This paper investigates if the cross-sectional income elasticity of the VTT is equal to inter-temporal income elasticity. The study is based on two identical stated choice experiments conducted with a 13 year interval. Results indicate that the relationship between income and the VTT in the cross-section has remained unchanged over time. As a consequence, the inter-temporal income elasticity of the VTT can be predicted based on cross-sectional income elasticity. However, the income elasticity of the VTT is not a constant but increases with income. For this reason, the average income elasticity of the VTT in the cross-sections has increased between the two survey years and can be expected to increase further over time.     

航空货运产业关联性及临空产业体系构建研究

本文将从航空经济链条体系结构入手,运用投入产出法对航空货运业与各产业部门的关联性进行定量分析,构建以运输成本为主要影响因素的区位选择指标分析货运枢纽机场的产业带动机制。最后本文对目前我国航空货运业对国民经济的整体贡献进行评价,并提出通过航空货运业带动区域经济发展的政策建议。     

Improving the forecasting accuracy of air passenger and air cargo demand: the application of back-propagation neural networks

This study employs back-propagation neural networks (BPN) to improve the forecasting accuracy of air passenger and air cargo demand from Japan to Taiwan. The factors which influence air passenger and air cargo demand are identified, evaluated and analysed in detail. The results reveal that some factors influence both passenger and cargo demand, and the others only one of them. The forecasting accuracy of air passenger and air cargo demand has been improved efficiently by the proposed procedure to evaluate input variables. The established model improves dramatically the forecasting accuracy of air passenger demand with an extremely low mean absolute percentage error (MAPE) of 0.34% and 7.74% for air cargo demand.     

Fuel demand,road transport pollution emissions and residents’ health losses in the transitional China

In recent years, China’s rapid economic growth resulted in serious air pollution, which caused substantial losses to economic development and residents’ health. In particular, the road transport sector has been blamed to be one of the major emitters. During the past decades, fluctuation in the international oil prices has imposed significant impacts on the China’s road transport sector. Therefore, inspired by Li and Zhou (2005), we propose an assumption that China’s provincial economies are independent “economic entities”. Based on this assumption, we investigate the China’s road transport fuel (i.e., gasoline and diesel) demand system by using the panel data of all 31 Chinese provinces except Hong Kong, Macau and Taiwan. To connect the fuel demand system and the air pollution emissions, we propose the concept of pollution emissions elasticities to estimate the air pollution emissions from the road transport sector, and residents’ health losses by a simplified approach consisting of air pollution concentrations and health loss assessment models under different scenarios based on real-world oil price fluctuations. Our framework, to the best of our knowledge, is the first attempt to address the transmission mechanism between the fuel demand system in road transport sector and residents’ health losses in the transitional China.     

Air transport and economic growth: a review of the impact mechanism and causal relationships

ABSTRACT

The impacts of air transport on the economy arise both directly, via activity in the aviation sector; and indirectly, via increased spending and wider economic benefits associated with improved access to resources, markets, technology and economic mass. Economic activity, in turn, supports and generates demand for air transport. Despite its potential importance, the reciprocal nature of the causal relationship between air transport and economic performance has remained somewhat understudied. This paper provides a synthesis review of the channels the aviation sector interacts with regional economy. The review focuses on quantitative studies that contribute to the state-of-the-art understandings of the causality. We find that the reciprocal causal relationship is more likely to prevail in less developed economies. For more developed economies, only one direction of the causality is recognised, which runs from air transport to economic growth. Especially substantial is the effect of airline enplanement on service-related employment. The reverse direction of the relationship is, however, not as significant as believed in a causal sense within the developed world. Therefore, cautions need to be taken when applying income elasticities (such as the elasticity of air passenger demand with respect to GDP) in air travel demand forecasting, which implicitly assumes that economic growth causally leads to air traffic increment. Based on the fundamental links between air transport and economic growth, some typical imperfections and inefficiencies in aviation markets are discussed and promising avenues for future research are proposed.     

Introducing alternative fuel vehicles in Hong Kong: views from the public light bus industry

Hong Kong was the first place in the world to implement a trial scheme to convert all public light buses (PLBs) on the road from diesel to alternative fuel vehicles (AFVs). The scheme, however, did not receive much support from PLB operators. At present, there is a rich literature on households’ demand for AFVs (especially in the USA). However, there have not been many studies about the demand for commercial AFVs in the business and public transport sectors. Since light buses running on alternative fuels are not widely available in the Hong Kong market, a stated preference (SP) survey was conducted to solicit the preferences of PLB operators on eight commercial vehicle attributes and seven forms of government support. The SP data are analyzed by multinomial logit (MNL) models. Detailed analyses on market segmentation and price elasticities follow. The results are of theoretical and practical significance.     

The effect of the price of gasoline on the urban economy: From route choice to general equilibrium

RELU-TRAN2, a spatial computable general equilibrium (CGE) model of the Chicago MSA is used to understand how gasoline use, car-VMT, on-the-road fuel intensity, trips and location patterns, housing, labor and product markets respond to a gas price increase. We find a long-run elasticity of gasoline demand (with congestion endogenous) of ?0.081, keeping constant car prices and the TFI (technological fuel intensity) of car types but allowing consumers to choose from car types. 43% of this long run elasticity is from switching to transit; 15% from trip, car-type and location choice; 38% from price, wage and rent equilibration, and 4% from building stock changes. 79% of the long run elasticity is from changes in car-VMT (the extensive margin) and 21% from savings in gasoline per mile (the intensive margin); with 83% of this intensive margin from changes in congestion and 17% from the substitution in favor of lower TFI. An exogenous trend-line improvement of the TFI of the car-types available for choice raises the long-run response to a percent increase in the gas price from ?0.081 to ?0.251. Thus, only 1/3 of the long-run response to the gas price stems from consumer choices and 2/3 from progress in fuel intensity. From 2000 to 2007, real gas prices rose 53.7%, the average car fuel intensity improved 2.7% and car prices fell 20%. The model predicts that from these changes alone, keeping constant population, income, etc. aggregate gasoline use in this period would have fallen by 5.2%.     

A macroscopic taxi model for passenger demand,taxi utilization and level of services

In most urban areas taxi services are subject to various types of regulation such as entry restriction and price control. However, effective intervention depends on generating and using suitable information on the demand-supply equilibrium of the taxi market. This paper develops a simultaneous equation system of passenger demand, taxi utilization and level of services based on a taxi service situation found in the urban area of Hong Kong over the last ten years. A set of variables is introduced including number of licensed taxis, taxi fare, disposable income, occupied taxi journey time as exogenous variables and daily taxi passenger demand, passenger waiting time, taxi availability, taxi utilization and average taxi waiting time as endogenous variables. These variables are coupled together through a system of nonlinear simultaneous equations whose parameters are estimated from survey data. The simultaneous equation system can be used to obtain useful regulatory information to assist with the decisions concerning the restriction over the number of taxi licenses and the fixing of the taxi fare structure as well as a range of service quality control. This revised version was published online in June 2006 with corrections to the Cover Date.     

Imperfect reversibility of air transport demand: Effects of air fare,fuel prices and price transmission

There are recent evidence that air transport demand may not have a perfectly reversible relationship with income and jet fuel prices, as is assumed in most demand models. However, it is not known if the imperfectly reversible effects of jet fuel price are a result of asymmetries in the supply side, i.e., asymmetries in cost pass through from fuel prices to air fare, or of demand side behavioral asymmetries whereby people value gains and losses differently. This paper uses US time series data and decomposes air fare and fuel price into three component series to develop an econometric model of air transport demand that is capable of capturing the potential imperfectly reversible relationships and test for the presence or absence of reversibility. We find that air transport demand shows asymmetry with respect to air fare, indicating potential imperfect reversibility in consumer behavior. We also find evidence of asymmetry and hysteresis in cost pass-through from jet fuel prices to air fare, showing rapid increases in airfare when fuel prices increases but a slower response in the opposite direction.