Interdependencies between transport fuel demand, efficiency and quality: An application to Austria

This paper focuses on the interdependencies between technical efficiencies and energy demand which are often either treated in isolation or do not get the sufficient attention in the literature. More precisely, this paper uses technical efficiencies as one crucial determinant of energy demand in order to integrate at least two issues that are usually investigated separately from each other: the rebound effect resulting from improved technical efficiencies and the asymmetry of energy demand. In this regard, our paper sets out a theoretical framework which has the following implications: higher efficiency increases service demand (first order rebound), low fuel prices and higher efficiency increases the demand for quality (second order) which in turn increases service demand further (third order); ceteris paribus, energy price shocks should increase scrapping rates; fuel prices direct the R&D expenditures of car producers; those on engine efficiency are irreversible, which has the consequence that energy price elasticities depend on the history of energy prices rather than being asymmetrical. Derived implications are subsequently tested on Austrian data. In particular, the purchasing decision diesel versus gasoline powered cars allows to refute the myth that consumers apply high implicit rates for discounting the future benefit from efficient cars.