Programa de Investigación de Energía y Cambio Climático FEDEA- Focus Abengoa. Serie Economía de las Infraestructuras FEDEA- Abertis.

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1 Fuel Consumpion, Economic Deerminans and Policy Implicaions for Road Transpor in Spain by Rosa M. González-Marrero * Rosa M. Lorenzo-Alegría * Gusavo A. Marrero ** DOCUMENTO DE TRABAJO Programa de Invesigación de Energía y Cambio Climáico FEDEA- Focus Abengoa Serie Economía de las Infraesrucuras FEDEA- Aberis June 2008 * Deparameno de Análisis Económico, IUDR (ULL). ** Deparameno de Análisis Económico (ULL), FEDEA and CAERP Los Documenos de Trabajo se disribuyen grauiamene a las Universidades e Insiuciones de Invesigación que lo solician. No obsane esán disponibles en exo compleo a ravés de Inerne: hp:// These Working Paper are disribued free of charge o Universiy Deparmen and oher Research Cenres. They are also available hrough Inerne: hp:// ISSN: X

2 FUEL CONSUMPTION, ECONOMIC DETERMINANTS AND POLICY IMPLICATIONS FOR ROAD TRANSPORT IN SPAIN Rosa M. González-Marrero 1 Deparameno de Análisis Económico, IUDR (ULL) Cáedra Economía de las Infraesrucuras (FEDEA-ABERTIS) Rosa M. Lorenzo-Alegría Deparameno de Análisis Económico, IUDR (ULL) Gusavo A. Marrero 2 Deparameno de Análisis Económico (ULL), FEDEA and CAERP Programa de Invesigación de Energía y Cambio Climáico (FEDEA-ABENGOA) ABSTRACT: Road ranspor is one of he mos polluing secors in Spain, generaing almos one fourh of oal CO 2 emissions. Moreover, he consumpion of fuel is he main source of hese emissions. In his paper we esimae several fixed-effec models o sudy he economic facors ha explain he shor-erm variaions in fuel usage per vehicle, disinguishing beween gasoline and diesel, using daa from he 17 regions in Spain beween 2000 and Price variaions in fuel, modernizaion of vehicles, improved infrasrucures and he dieselizaion process have proved ineffecive in reducing energy usage per-vehicle in Spain, which would indicae he need o implemen several measures simulaneously o conrol he increasing use of road ranspor. KEY WORDS: Fuel consumpion, road ranspor, fixed-effec model. JEL: R41, O13, O56 1 Correspondence: Deparameno Análisis Económico, Universidad de La Laguna, Campus de Guajara, La Laguna, Sana Cruz de Tenerife; Fax: , Tfno: , rmglzmar@ull.es 2 Gusavo A. Marrero acknowledges he financial suppor of ABENGOA (hrough Programa de Invesigación de Energía y Cambio Climáico FEDEA-ABENGOA). 1

3 1. INTRODUCTION The Spanish economy has grown srongly over he pas decade, resuling in, among oher hings, a large increase in he demand for ransporaion. Beween 1995 and 2005, he ransporaion of passengers and freigh grew by 43% and 55%, respecively, oupacing he 38% of he real GDP. In ha decade, CO 2 emissions from he ransporaion indusry grew by 43%, versus he 13% increase recorded by he EU-15, wih road ranspor conribuing he mos o his increase. 3 Overall, emissions from road ranspor represened 25% of oal emissions in Spain in 2005, a raio ha is only exceeded by he energy indusry, whose share is 34% of oal emissions. Clearly, he rend in road ransporaion in Spain poses a serious roadblock o reaching he goals se by he 1997 Kyoo Proocol (raified by Spain in 2002), which for Spain limis he increase in emissions in o 15% of heir 1990 levels. 4 CO 2 emissions from road ranspor sem primarily from he consumpion of energy in he form of fossil fuels, which in 2005 represened almos 99% of all fuel used in Spain. As a resul, any shor-medium erm measures inended o reduce CO 2 emissions mus ineviably rely on conrolling and making more efficien use of he fuel consumed by vehicles. The consumpion of energy in he ransporaion secor has been sudied in deph in he empirical lieraure for various counries. See, for example, Schipper e al. (1992) and Johansson and Schipper (1997) for OECD counries, Mazzarino (2000) for Ialy, Kwon (2005) for he Unied Kingdom, Polemis (2006) for Greece, Tapio e al. (2007) for he EU- 15, Zervas (2006) for Ireland, Alvaes and Bueno (2003) for Brazil, Samimi (1995) for Ausralia, Nicol (2003) for Canada and he Unied Saes, Ramanahan (1999) for India, Koshal e al. (2007) for Japan, and Belhaj (2002) for Morocco, among ohers. And ye, despie he increasing demand for energy consumpion in Spain and is acive dieselizaion process, few empirical sudies have been done on he Spanish case, which is unique siuaion in he European conex. Some excepions are he works of Labeaga and López-Nicolás (1997) and Labandeira and López-Nicolás (2002), which esimae he demand for auomoive fuel, hough hey mainly focus on analyzing he effecs of axes on overall consumpion, and Asensio e al. (2002), which esimaes a perol expendiure funcion for Spain and evaluae he redisribuive effecs of perol axaion, using micro daa from he Spanish Household Budge Survey. 5 In his paper we examine which are he facors ha explain he increasing energy consumpion by road ranspor in Spain. The resuls obained allow for an evaluaion of he effeciveness of differen ransporaion and energy policies applied in Spain o reduce shorerm energy use in road ranspor. This ineviably implies managing how exising vehicles consume fuel, which is he way of conrolling energy inensiy ha we propose in his work. Explanaory facors considered include hose which would affec energy consumpion in 3 In is repor, Environmenal Profile in Spain for 2006, he Spanish Minisry for he Environmen noes ha emissions from road ranspor accoun for over 90% of he Spanish ransporaion indusry s oal emissions. 4 A he European level, concerns over he polluion generaed by ransporaion have resuled in relevan policies being drafed, as se ou in he Whie Paper on Transporaion, he Green Paper on he Securiy of Energy Supply and he Green Paper on Energy Efficiency. A he Spanish level, we noe he E4 sraegy for , which ses a series of energy savings and efficiency goals for his indusry. 5 For he Spanish case, mos sudies reference emissions due o ransporaion. We noe here some recen works: Pérez Marínez and Monzón de Cáceres (2006) developed a model for he regions which explains he relaionship beween greenhouse gas emissions from ransporaion and he per capia growh in he GDP; Burón (2005) forecas emissions from road ranspor in Spain for ; Lumbreras e al. (2008) advanced projecions for energy consumpion and emissions for he region of Madrid unil

4 ransporaion from boh a supply and demand perspecive. On he demand side, we examine aspecs involving echnology and infrasrucure, while on he supply side we endeavor o analyze facors involving income, price and mobiliy. We limi our analysis o a shor-erm perspecive, due o wo reasons. The firs concerns he difficulies and uncerainies involved in empirically analyzing long-erm facors. A presen, long-erm sraegies ineviably imply a greaer dependence on and developmen of renewable energies in ransporaion and on coninuing echnological improvemens in vehicles, boh of which involve enormous economic coss. Furhermore, here are no long-erm daa on renewable energies 6, which limis he significance of empirical resuls derived from any coinegraion analysis. The second reason involves he curren debae on climae change and he urgen need o ake immediae shor-erm acions o reduce CO 2 emissions. The mehodology used in his paper is based on he research by Barro and Sala-i-Marín (1992, 1995) and Mankiw e al. (1992), who sudied he convergence and he deerminans of economic developmen using models based on he neoclassical growh heory. De la Fuene (2002) applied his ype of models o analyze Spanish economic growh from a regional perspecive. Brock and Taylor (2004, 2006) and Álvarez e al. (2005) did he same for he case of emissions of differen polluans a inernaional level, while Markandya e al. (2006) applied i o he overall energy inensiy in emerging European counries. In his paper we use a specificaion consisen wih his mehodology and apply i in an innovaive way for he case of energy use in road ranspor, disinguishing by fuel ype in he differen Spanish regions for he period In addiion o he breakdown by region and he mehodology used, anoher relevan aspec of his work is he disincion made beween gasoline and diesel consumpion. 7 This analysis is very imporan for he case of Spain, since i is probably, along wih France, one of he counries in which he dieselizaion process has been he mos significan in he las decade. This has led o a very uneven disribuion in he consumpion of gasoline and diesel, implying ha he conclusions derived from an analysis of overall energy consumpion could be misleading. The resuls obained in his work allow he following conclusions o be drawn: firs, given he reduced esimaed shor-erm fuel price elasiciies (which are insignifican even for diesel), we can conclude ha axaion policies are largely ineffecive in reducing per-vehicle energy usage, a leas a he curren fuel price levels; second, he measures adoped, such as dieselizaion, he modernizaion of vehicles, he improvemen of road infrasrucures and he promoion of public ransporaion have no had he desired effec on energy consumpion. These measures have resuled in greaer mobiliy due o he beer performance of he new vehicles, he lower cos per kilomeer of diesel auomobiles and he enlargemen and improvemen of he road nework which, as heory suggess, generaes a higher demand for ransporaion. The resuls, hen, hin a he shor-erm need o joinly apply differen measures for road ranspor, such as resricing and regulaing he mobiliy of privae vehicles, rewarding efficien use and promoing he use of public and non-moorized ransporaion. 6 In road ranspor in Spain, biofuel usage was 0.83% ha of peroleum derivaives, while in he EU-15 i was 1.21%. Before 2000, he use of biofuels was negligible. 7 See Polemis (2006) for Greece and Zervas (2006) for Ireland and Labandeira and López-Nicolás (2002) for Spain. 3

5 This paper is srucured as follows. In secion 2 we analyze CO 2 emissions in Spain, along wih energy consumpion indicaors, for he period. Secion 3 presens he mehodology used, while secion 4 discusses he resuls obained from a fixed-effec model o characerize he facors explaining changes in energy consumpion per vehicle, disinguishing by ype of fuel. Finally, secion 5 summarizes he main conclusions and offers some policy recommendaions in ligh of he resuls obained in his paper. 2. CO 2 EMISSIONS AND ENERGY USE IN ROAD TRANSPORT IN SPAIN In his secion we firs presen he rend in CO 2 emissions in he road ransporaion secor in Spain as compared o Europe, and we noe is direc relaionship o he energy consumpion in he secor. Addiionally, we presen he rends in energy consumpion and he differen indicaors for road ranspor in Spain by region. The effec of greenhouse gas emissions (of which CO 2 is he mos imporan) has led he EU o adop a commimen o reduce emissions by 8% below 1990 levels for he period, while Spain, which has experienced considerably higher emission raes, has commied iself o reducing hem o a mos 15% above 1990 levels. Graph 1 shows he oal CO 2 rends for he EU-15 and Spain, along wih he Kyoo Proocol objecives agreed o in boh regions. Noe ha beween 1997 and 2005, Spain was well above is Kyoo arge (+15% wih respec o 1990), while in he EU-15, alhough emissions are sill above is global arge (-8%), he gap beween acual emissions and he objecive is much smaller ha in he case of Spain. 8 Graph 1: CO 2 emissions in he EU-15 and Spain: Index1990= EU-15 Spain EU-15 Goal (92% 1990) Goal Spain (115% 1990) Source: Eurosa and Minisry for he Environmen. Compiled by auhors 8 In view of he emissions daa available o dae, he Spanish governmen [Minisry of he Environmen Repor (2007)] has se an objecive for of no exceeding he base year emissions by 37%. Mos of he difference wih respec o he 15% will be offse hrough he purchase of carbon credis. 4

6 Road ranspor is he secor ha conribues he mos o CO 2 emissions (afer he energy indusry). Addiionally, in he case of Spain, his conribuion is considerably higher han in he EU-15. Graph 2 shows he rend for he raio of CO 2 road ranspor emissions wih respec o oal emissions, for Spain and EU-15 beween 1990 and This difference is explained by he raio beween road ranspor final energy consumpion and oal energy consumpion, which is around 32% in Spain and only 25% in EU-15. Noe also how he difference beween he Spanish and EU-15 raios remains consan hroughou he period. Graph 2: Raio road ranspor CO 2 emissions / oal CO 2 emissions EU-15 and Spain, % annual growh beween 1990 and % % annual growh beween 1990 and EU Spain Source: Eurosa. Compiled by auhors One of he main measures adoped in Spain o conrol CO 2 emissions from road ranspor has been o promoe he use of diesel, a process commonly known as dieselizaion. This enails encouraging he use of diesel vehicles over gasoline vehicles hrough lower axes on diesel. To assess he effeciveness of his measure in conrolling emissions, we show in Graph 3 he raio of gasoline versus diesel vehicles, 9 and he CO 2 emissions from road ranspor per capia and per vehicle for he period. This graph reveals a sharp drop in he raio of gasoline o diesel vehicles. In 1997 gasoline vehicles ounumbered diesel by almos hree o one, while by 2006 he raio has dropped approximaely o one. And ye his dieselizaion process, along wih echnical improvemens inroduced in vehicles and he commimen by manufacurers o reduce emissions 10, has done lile o reduce per capia CO 2 emissions, which acually increased during he period analyzed. Nor did emissions decrease wih respec o he oal number of vehicles, as was iniially he hope wih dieselizaion. 11 This is because during he ime period in quesion he 9 The number of vehicles includes passenger cars, buses, racors, vans and moorcycles. For 2006, he saisics on he oal number of vehicles differeniae no only beween gasoline and diesel vehicles, bu also beween oher vehicles no included in his sudy and which accoun for a very small percenage of he oal. 10 In 1995 he European Union signed an agreemen wih he European Auomobile Manufacurers Associaion (ACEA) o reduce emissions o 120 grs/km for vehicles regisered in he EU afer This is in conras o he predicions made by some auhors simulaing differen diesel peneraion scenarios in some European counries [Zerva and Lazarou (2007) for Swizerland and Zerva e al. (2006) for Greece] and wih he resuls of oher sudies [Sullivan e al. (2004)]. 5

7 number of vehicles increased more han he populaion, as evidenced by greaer raes of vehicle ownership, and also mobiliy has increased. Graph 3: Raio of gasoline o diesel vehicles, CO 2 overall emissions per capia and CO 2 emissions per vehicle in Spain ( ) 4 3,5 3 2,5 2 1,5 1 0, gasoline flee/diesel flee per capia CO2 emissions vehicle emissions Source: Office for Traffic (DGT), Minisry for he Environmen (MMA), INE The dieselizaion process is relaed o anoher observed fac: an increase in diesel consumpion (by over 6% per year) and a lower gasoline use (by slighly over 4% per year) beween 1998 and Graph 4 shows he change in overall energy, gasoline and diesel consumpion for his period. 12 The uneven rends display how oal consumpion increased by around 30%, gasoline use fell some 20% and diesel use wen up by almos 70%. The difference in he rends of gasoline and diesel consumpion promped us o perform an analysis differeniaed by fuel ype, as presened in he nex secion. Our objecive is o idenify which are he facors deermining gasoline and diesel use in Spain, from a regional perspecive. We focus on a measure of energy inensiy in road ranspor, defined as he raio beween fuel consumpion and he number of vehicles. This measure is consisen wih he definiion of energy efficiency given by Velhuijsen and Worrell (2002), which saes i as reducing he use of energy per uni of aciviy wihou affecing he level of his aciviy. 13 In order o compue he proposed energy inensiy measure, we use he number of vehicles, i.e. mobiliy, as a proxy for producion in he secor. This is a good approximaion given he 12 Gasoline and diesel consumpion is measured in kiloons. In addiion, he daa on diesel only consider he ype A diesel used exclusively in auomobiles. Moreover, given he non-availabiliy of separae daa for diesel ypes for he years 1998, 1999 and 2006, we deermined diesel ype A consumpion by using he average of diesel A usage o oal diesel usage (A+B) for he years 2000, 2001, 2002, 2003, 2004 and The definiion for fuel efficiency in ranspor is normally expressed in liers per kilomeer [see Kirby e al. (2000)]. Since he official saisics for Spanish regions do no differeniae beween kms raveled by gasoline and kms raveled by diesel vehicles, we canno use his measure. The ideal measure for our purposes would differeniae beween passenger and freigh ranspor, given he muli-oupu naure of ransporaion aciviies. However, separae saisics a his level by fuel and by Spanish regions are no available eiher. 6

8 exisence of a high degree of correlaion beween he increase in mobiliy by road and he growh in he number of cars. Graph 4: Gasoline, diesel and overall consumpion in Spain, Index 1998= Gasoline use Diesel use Toal use Source: Saisics Bullein on Hydrocarbons. CORES, Minisry for Indusry, Tourism and Commerce. Graph 5 shows he change in he energy usage raios per vehicle for boh gasoline and diesel for road ranspor. Noe he clear drop in hese raios for boh cases, hough he decrease is more pronounced for diesel. Beween 1998 and 2006 he amoun of gasoline used per vehicle dropped by 17%, while diesel consumpion per vehicle fell by 26%. The drop in his raio for gasoline is explained by he fac ha he decrease in consumpion is greaer han he reducion in he number of vehicles, while he drop in he raio for diesel resuls from an increase in usage ha is below ha of he number of vehicles. These rends on energy consumpion and number of vehicles by fuel ype offse when we consider he overall picure which reveals, as shown in he graph, ha energy consumpion wih respec o he oal number of auomobiles remained pracically consan hroughou he period on quesion. This is consisen wih he road ranspor CO 2 emission rends per vehicle shown above (see Graph 3). The variables considered in his paper as deerminans of energy consumpion per vehicle are: i) raio oal number of vehicles/road nework lengh, as a measure of sauraion of he nework; ii) raio vehicle regisraions/oal number of vehicles, as a measure of modernizaion of he vehicle flee; iii) growh rae of real Gross Domesic Produc (GDP) per capia as a measure of purchasing power; and, iv) real fuel prices (gasoline and diesel), as a key variable affecing he demand of fuel consumpion. 14 Table 1 liss he average annual 14 Daa on he road nework, vehicle regisraion and real gasoline and diesel prices were obained from he Minisry of Transpor and Public Works. GDP daa per capia for he differen regions were aken from he Naional Insiue for Saisics (INE). Perol prices are measured in real erms and are reail prices. See Perdiguero (2006) for more deails abou how perol prices are deermined in Spain. 7

9 variaion raes for all hese variables for he period for each Spanish region (excluding Ceua and Melilla). Graph 5: Energy consumpion per vehicle in Spain: overall, gasoline and diesel Index 1998= Gas oline Diesel Overall Source: Saisics Bullein on Hydrocarbons. CORES. Minisry for Indusry, Tourism and Commerce. DGT TABLE 1: VARIABLES USED PER REGION Average annual growh rae REGION Consumpion/ Consumpion/ No. of vehicles/ Regisraions/ Per capia Gasoline vehicle* Diesel vehicle* road nework No. of vehicles** GDP Andalusia Aragón Asurias Balearic Isl Canary Isl Canabria Casilla y León Casilla La Mancha Caalonia Valencia Exremadura Galicia Madrid Murcia Navarre Basque Counry La Rioja SPAIN * Average annual growh rae ** Average annual growh rae The able shows how he raio of boh gasoline and diesel consumpion per vehicle fell beween 1999 and 2006 in every Spanish region. Likewise, wih he excepion of Murcia and he Basque Counry, he decrease in his raio was greaer for diesel han for gasoline. 8

10 According o he rend in he number of vehicles versus he road nework, he sauraion level of roads increased in every region, wih he maximum average annual growh rae in Murcia (4.8%) and he minimum in Aragon (2.1%). Sill, if we consider year-o-year numbers, he rae of increase in his sauraion measure end o moderae over ime. As for he degree of modernizaion of he vehicle flee, his varies grealy by region. Vehicle regisraion per oal number of vehicles fell in eleven regions, while i increased in six. The highes regisraion rae was in Madrid, wih an average annual growh rae of +3.1%, while he lowes was in Navarre, where he rae changed by -3.7%. Real gasoline and diesel prices increased by 4.9% and 6.5%, respecively, beween 1998 and Significan differences were noed in heir growh raes during his period. The large volailiy in fuel prices resuled from Spain s enormous dependence on foreign oil, on he imporan flucuaions on fuel prices in dollars beween 1999 and 2006, 15 and on changes in fuel axes and heir repercussions on he final price. Lasly, he daa on per-capia GDP growh rae showed an average increase of 2.6% naionally, varying beween 0.11% in he Balearic Islands and 3.7% in Exremadura. Overall, he per-capia GDP figures showed a noable regulariy among he various regions, as evidenced by he generalized slowdown beween 2001 and and he laer recovery unil 2006 for mos of he regions. 3. METHODOLOGY In his secion we firs presen he model specificaion proposed o sudy he shor-erm influence of economic facors on energy consumpion in road ranspor. The endogenous variable is a measure of energy inensiy, defined as he raio of energy consumpion o he oal number of auomobiles, differeniaing beween gasoline and diesel. The explanaory variables used are among hose radiionally considered as indicaors for characerizing he behavior of he road ransporaion secor. Fuel demand is dynamic by naure and herefore, as poined ou by Johansson and Schipper (1997), changes in he explanaory variables do no lead o simulaneous changes in energy usage, which insead lags behind hose changes. This may be due, for example, o a persisence in fuel usage habis, requiring ha a dynamic model be specified. Some auhors use he so-called endogenous-lag model, where he endogenous variable is esimaed as a funcion of he lagging endogenous variable. In his paper we oped o accoun for his effec by considering he growh rae of he endogenous variable, since we wan o focus specially on shor-erm flucuaions. Specifically, he mehodology used in his paper is based on he convergence and growh approach of Barro and Sala-i-Marin (1992, 1995), applying i o energy consumpion. This mehodology presens a leas hree advanages: firs, i allows for an easy and useful inerpreaion of he esimaed parameers in erms of elasiciies and as evidence of convergence beween he regions; second, i permis working wih he enire daa panel and o specify fixed-effec models o esimae is parameers [Hsiao (1986)]; and hird, i akes ino accoun any possible heerogeneiy beween he various regions. The fixed-effec model based on his mehodology is as follows: 15 For example, in 2001 he price in dollars of a barrel of Bren crude fell 14%, while in 2004 and 2005 i rose by 33 and 42%, respecively. 9

11 ln( y ) = α i + β ln( y 1) + λ' X + φ' S + ε, (1) where is he firs difference operaor, meaning ln(y ) is a measure of he annual logarihmic variaion of he endogenous variable for each region i a ime ; ln(y -1 ) is he level of energy use per vehicle of region i in he previous period; S is a group of imedependen explanaory variables which are common o all he regions (for example, rends in naional energy prices 16 ); X is a se of ime-dependen variables which are dependen on each region, and which can affec energy usage per vehicle (for example, degree of sauraion of he road nework, regisraions, ec.); α i considers hose fixed facors inheren o each region and which are no included in X (such as geographical, social or local policy aspecs). Finally, ε encompasses effecs of a random naure which are no considered in he model. In his fixed-effec model, a negaive coefficien for he parameer associaed wih ln(y -1 ) indicaes he presence of condiional convergence in he per vehicle energy use variable among he differen Spanish regions during he period in quesion. In oher words, condiioned o is long-erm equilibrium, he percenage of fuel consumpion per vehicle in a region ends o increase more rapidly (or o decrease more slowly) for a smaller iniial value of his raio. 17 The fixed-effec model is based on he available panel daa (119 observaions for 17 regions over seven years), as specified in Hsiao (1986). This model considers he possible heerogeneiy presen among he Spanish regions as refleced in he series of residuals and he esimaed consans (he fixed effecs) for each region. The variables considered are as follows: GASO is he energy consumpion divided by he number of gasoline vehicles; DISL is he consumpion of diesel divided by he number of diesel vehicles; GDPpc is he per capia Gross Domesic Produc; P.GASO is he real price of gasoline hroughou Spain; P.DISL is he real price of diesel in Spain; SAT is he sauraion of he road nework, measured as he oal number of vehicles divided by he kilomeers of road; REG is he modernizaion of he vehicle flee, measured as he raio beween new regisraions and he oal sock of exising vehicles. The model also assumes a linear endency [as in Kirby e al. (2000) and Polemis (2006)], denoed by TEND, and which aims o accoun for possible echnological or regulaory changes common o all regions and which undergo sable changes in ime Since annual changes in perol prices in Spain are mainly deermined by he evoluion of inernaional energy prices, we assume in his work a common price series for all Spanish regions. 17 Specificaion (1) assumes ha he endogenous variable in he model (fuel consumpion per vehicle) has is own equilibrium level in each Spanish region. This variable depends on facors such as geographical, insiuional, echnological, social, and oher aspecs. The conras in condiional convergence signals he exisence of a correlaion beween he rae of change of he endogenous variable and is iniial level, condiioned by he long-erm equilibrium of he variable in each region. See, among ohers, Barro and Sala-i-Marin (1995) for more deails on his poin. 18 The number of passengers on boh public ransporaion and road raffic were also considered as explanaory variables. Daa on public ranspor passengers per region for boh urban and inerurban ravel were obained from INE informaion on a daa se of 750 companies. This informaion was no available for all he regions, however, hence i i no suiable for our purposes. The raffic variable was obained from saisics published by he Minisry of Transpor and Public Works and is measured in erms of vehicles-km. This variable was no only no significan in he model, bu is rend revealed very srong changes in some regions which lacked a reasonable explanaion. For his reason, his variable was no included in he proposed model eiher. 10

12 Taking specificaion (1) and he variables defined above as our saring poin, we can esimae he following models, he firs for gasoline and he second for diesel: ln( GASO λ ln( REG 3 ln( DISL λ ln( REG 3 ) ) α + β ln( GASO = i 1 ) + φ ln( P. GASO 1 α + β ln( DISL = i 1 ) + φ ln( P. DISL 1 ) + λ ln( GDPpc ) + φ TEND 2 1 ) + φ TEND + ε ) + λ ln( GDPpc ε,, ) + λ ln( SAT 2 ) + λ ln( SAT 2 ) + ) + (2) (3) 4. RESULTS The resuls for hese wo models are shown in Table 2. For each model we give he esimaes of he parameers associaed wih he explanaory variables considered, he -saisic and he p-value of he es. The resuls obained allow us o conclude ha he explanaory variables considered are globally significan in explaining he behavior of he endogenous variable. In addiion, he adjusmen of he gasoline model is, on average, beer han ha for diesel. This agrees wih he fac ha he esimaes of he coefficiens associaed wih he explanaory variables are less significan han in he diesel model. The worse adjusmen of his model could be due o he dieselizaion process ha has aken place in Spain over he las decade, and which has resuled in diesel consumpion being exposed o facors which are no of a sricly economic naure. Wha is more, noe ha in he diesel model, he coefficiens associaed wih he explanaory variables are lower in magniude, which allows us o conclude ha he relaionship beween gasoline consumpion and vehicle ype is less sensiive o changes in he economic variables used. The parameers esimaed for he DISL -1 variable (specific o he diesel model) and he GASO -1 (specific o he gasoline model) are negaive and significanly differen from zero a he 1% level of significance. The esimae is for he diesel model and for he gasoline model. The evidence for condiional convergence is significan in boh cases, hough i is greaer for he gasoline case. The esimaes indicae ha he rae of convergence for he fuel consumpion per vehicle raio, condiioned o is long-erm equilibrium levels in each region, is 45% for diesel and 88% for gasoline. These values are very high in comparison o hose ypical in he lieraure on growh, hough his is parly due o he shor ime scale used in our sample. The main difference beween he wo models is ha for he diesel case, changes in he price of fuel and GDPpc do no resul in significan changes o he consumpion per vehicle raio. The insensiiviy of his raio o he price of diesel could be because diesel prices during he period in quesion were very low and below hose of gasoline. For is par, he numerous incenives for diesel vehicles along wih higher fuel efficiency could have boosed sales of his ype of vehicle, and herefore of diesel, independenly of changes in income. The income 11

13 elasiciy in he gasoline model is significan, hough, wih a value of This is somewha higher han values found in empirical daa a an inernaional level. 19 Table 2: Esimaes of he consumpion models per vehicle (gasoline and diesel) Diesel model Gasoline model Esimae -saisic P-value Esimae -saisic P-value DISL(-1) GASO(-1) GDPpc() P.DISL() P.GASO() SAT() REG() TEND R Regarding he real price of fuel, he esimae of is elasiciy is negaive and significan for he case of gasoline, hough is magniude is well below one (-0.12). This resul confirms he evidence ha he elasiciy of he demand price for gasoline is low in he shor erm, as verified by, among ohers, Kayser (2000) wih daa for he Unied Saes. Resuls a he inernaional level place he price elasiciies a around -0.2 and -0.3 (Dahl and Serner, 1991). The lower sensiiviies of Spanish consumers could be explained by he low price of fuel in Spain. 20 This indicaes ha fuel demand is inelasic, a leas a curren price levels and in he shor erm. Moreover, i suppors a resul commonly seen in he lieraure: alhough increasing fuel axes is a policy ha helps o increase public revenues, i is no effecive o lower fuel consumpion [Kirby e al. (2002)]. For is par, he price of he alernaive fuel is no significan in explaining he shor-erm changes in consumpion of he oher fuel, which is why P.DISL was no included in he gasoline model and P.GASO in he diesel model. This las resul is also consisen wih he lieraure on ransporaion due o he sricness ha exiss in subsiuing ypes of vehicles in he shor erm. Sill, we mus noe ha during he period in our sudy, here was a significan subsiuion process beween gasoline and diesel vehicles, hough he main reason was he dieselizaion process iself, and no so much variaions in he price of fuel. The remaining variables are specific o he road ranspor secor and include relevan aspecs ha can affec energy usage in he secor. Thus, for example he variable SAT (our measure of he degree of sauraion of he road nework in each region) is significan in boh models. Is esimae is negaive and very similar in boh models (-0.34 for diesel and for gasoline). This may be inerpreed in several ways. I could imply ha an improvemen of he 19 Dahl and Serner (1991) showed ha shor-erm income elasiciy on gasoline demand varied beween 0.30 and 0.52 in he differen sudies hey considered. Sudies such as ha by Koshal e al. (2007) gave values of For a deailed review, see Graham and Glaiser (2002) and Goodwin e al. (2004). 20 Labandeira and López-Nicolás (2002) obained a fuel price elasiciy value similar o ours, hough hey used a differen mehodology. 12

14 road infrasrucure, and he resuling reducion in sauraion, promoes higher vehicle mobiliy 21 and herefore increases energy usage. Anoher possible implicaion of his resul is ha any measure which favors he use of public ranspor (rain, subway, ram, ec.) would iniially lead o a reducion in he use of privae vehicles and hus o a reducion in he sauraion of he road nework. Bu according o our resuls, his could resul in an indirec incenive o use vehicles (and even o purchase new ones), which would increase energy consumpion and could more han offse he iniial effec. This resul mus no lead us o believe ha he way o reduce energy consumpion for ransporaion is o abandon road invesmens o saurae hem arificially, which would resul in lower produciviy and less jobs. The soluion involves increasing he usage of he more susainable modes of ransporaion (public and non-moorized ranspor), improving and enlarging he road nework while a he same ime resricing and penalizing he use of cars, as well as promoing a more efficien use of cars, hrough oher measures (e.g. car-pooling). Anoher relevan resul which complemens hose menioned above is obained by inerpreing he resuls associaed wih he REG and TEND variables ogeher. The esimaed coefficiens of hese wo variables in boh models are very significan and have a similar magniude. Since new vehicles are more fuel-efficien han old ones, he modernizaion of he vehicle flee could lead o a reducion in fuel usage [as suggesed by Sprei e al. (2008)], 22 which would imply a negaive coefficien for he REG variable. And ye he resuls of our research indicae ha his variable has a posiive effec on energy use. This resul implies ha improvemens in fuel efficiency have no been sufficien o offse he increase in mobiliy resuling from he lower marginal cos of ransporaion (he so-called rebound effec) [see Schipper e al. (2002)]. Furhermore, he modernizaion of he vehicle flee has resuled in larger and safer vehicles (all-errain vehicles, or SUVs) 23, which had a negaive effec on reducing fuel consumpion because he higher weigh and power of hese vehicles. As noed by Koopman (1995), vehicle weigh and engine displacemen are also insrumens for environmenal policy and mus be aken ino accoun when modernizing he vehicle flee. For is par, he negaive coefficien associaed wih he linear endency does indicae ha here have been cerain improvemens in fuel efficiency. Moreover, he fac ha he esimaed coefficien is pracically idenical in boh models suggess he exisence of a legislaive framework and/or echnological change common o all regions and vehicle ypes which has had a similar effec in reducing per-vehicle fuel consumpion 21 As noed by Goodwin (1996), improving infrasrucures has an induced effec on he demand for ranspor. Moreover, Cervero and Hansen (2002) provided empirical evidence of he exisence of an inverse relaionship beween invesing in roads and he demand for ranspor, namely ha an expansion of infrasrucures generaes demand for ranspor, which in urn induces he creaion of infrasrucures. 22 Balas and Xepapadeas (1999) concluded ha he modernizaion of a counry s vehicle flee favored lower emissions. 23 In Spain, a vehicle renovaion incenive-scheme (Plan PREVER) funded by he naional governmen has been in effec since During he period , a oal of 3.3 million vehicles were regisered as a resul of his incenive scheme. This program has conribued o a large exen o he modernizaion of he counry s vehicle flee. Anoher resul was he increase in he number of SUVs represening 12.6% of oal flee in 2006 (ANFAC, 2006). 13

15 5. CONCLUSIONS One of he main problems involving road ranspor is is grea energy dependence and he associaed emissions. The fac ha he growh in he demand for ranspor in Spain over he las decade has exceeded ha of GDP suggess ha here mus be oher facors besides income o explain mobiliy and fuel consumpion. In his paper, we use a model whose endogenous variable is he annual rae of change in fuel consumpion per vehicle and per fuel ype (gasoline or diesel) for he period We consider a se of explanaory variables of an economic naure, some of hem unique o he ransporaion indusry, such as per-capia GDP, he real price of fuel, he raio beween he number of vehicles and road nework lengh, and new vehicle regisraions versus he exising number of vehicles. Finally, we also considered a linear rend which would accoun for legislaive and/or possible echnical advances which would affec all he regions equally. Obained resuls show ha he gasoline model provides a beer overall fi han he diesel model. This could be because for he case of diesel, here are oher non-economic facors, which may affec is consumpion. The esimaed coefficiens for he diesel model are also smaller in magniude and less significan han hose for gasoline. This indicaes ha heir behavior is less sensiive o modificaions in he economic variables. In his sense, he lack of significance of GDP per-capia and fuel price in he diesel model is noable. The low sensiiviy shown by he variaion in per-vehicle fuel consumpion o fuel price has been widely verified a an empirical level, and serves o highligh ha he unresponsiveness of consumers in Spain o fuel prices could be due o he low levels of he laer. The variable used in our sudy as a proxy for he sauraion of he road nework and, o some exen, of mobiliy, was he raio beween he number of vehicles and he lengh of he road nework. This variable urned ou o be highly significan in boh models and wih parameers wih relaively high absolue values. This resul would indicae ha any measure inended o reduce congesion on he roads, such as he promoion of guided ranspor (rain, ram) and/or he inroducion of BUS-HOV lanes could indirecly resul in greaer privae vehicle use due o shor-erm improved mobiliy condiions on roads. In shor, ravel would be encouraged (paricularly long-disance ravel) and he final oucome would be a higher energy use. As concerns he vehicle modernizaion variable, i has a posiive and very significan effec on fuel consumpion. This clearly shows ha he modernizaion of he vehicle flee has had he opposie effec on fuel consumpion compared o wha was iniially inended for. We also find several facors, which are common o all regions, and ha affec gasoline and diesel consumpion equally, possibly due o echnical improvemens or o legal consideraions, as refleced by he negaive esimaed linear endency coefficien inroduced in boh models. The ne resul is ha, in order o reduce shor-erm energy use by road ranspor, along wih CO 2 emissions, wihou a concomian loss in produciviy, i is criical ha measures be implemened which no only favor public and non-moorized ranspor and efficien energy use, bu which, a he same ime, manage mobiliy and penalize he indiscriminae use of privae vehicles. A combinaion of measures along hese lines has been proposed a he sae level as par of he Acion Plan for Energy Savings and Efficiency in Spain (PAE4), which includes raffic conrol policies, promoes non-moorized forms of ranspor, and proposes improvemens o and greaer developmen of public ranspor. As such, measures adoped a 14

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