Applying engineering and fleet detail to represent passenger vehicle transport in a computable general equilibrium model

Abstract

A well-known challenge in computable general equilibrium (CGE) models is to maintain correspondence between the forecasted economic and physical quantities over time. Maintaining such a correspondence is necessary to understand how economic forecasts reflect, and are constrained by, relationships within the underlying physical system. This work develops a method for projecting global demand for passenger vehicle transport, retaining supplemental physical accounting for vehicle stock, fuel use, and greenhouse gas (GHG) emissions. This method is implemented in the MIT Emissions Prediction and Policy Analysis Version 5 (EPPA5) model and includes several advances over previous approaches. First, the relationship between per-capita income and demand for passenger vehicle transport services (in vehicle-miles traveled, or VMT) is based on econometric estimates and modeled using quasi-homothetic preferences. Second, the passenger vehicle transport sector is structured to capture opportunities to reduce fleet-level gasoline use through the application of vehicle efficiency or alternative fuel vehicle technologies, introduction of alternative fuels, or reduction in demand for VMT. Third, alternative fuel vehicles (AFVs) are represented in the EPPA model. Fixed costs as well as learning effects that could influence the rate of AFV introduction are captured explicitly. This model development lays the foundation for assessing policies that differentiate based on vehicle age and efficiency, alter the relative prices of fuels, or focus on promoting specific advanced vehicle or fuel technologies.