Gasoline price and fuel economy of new automobiles: Evidence from Chinese cities

Abstract

With climate change and energy security being global issues, improvements in passenger vehicles' fuel economy can greatly aid in reducing gasoline usage and mitigating carbon emissions. This paper examines the effect of gasoline price on overall automobile sales, and its role in affecting the types of vehicles purchased by Chinese consumers. Based on monthly model-level sales data for 31 major cities in China from 2013 to 2019, we find that increased gasoline price not only reduces total sales quantity, but also alters fleet composition as consumers purchase more fuel-efficient cars, and less of their inefficient counterparts. However, an essential question remains: To what extent does gasoline price affect greenhouse gas emissions? Policy simulations based on our findings show that a 1 CNY/L increase in gasoline price leads to a relatively modest improvement in fleet fuel economy of new automobiles by about 0.13 L/100 km (around 1.7% improvement). In turn, this improvement in fuel economy leads to a reduction of the annual carbon emission by 3.64%.