. The effects of gasoline pricing according to market mechanism on its demand and environmental emission
The coefficients of real price and income (real households consumption expenditure) in the long-run equation are long-run elasticties of price and income and in the short-run relation are short–run price and income elasticities, because in the error correction form of ARDL model established for gasoline demand, all of the variables are expressed in the logarithmic form. So, in the gasoline demand model, the coefficients of
'LRPGOLC2 and LRPGOLC2 are short-run and long-run price elasticites. the short - and long-run price elasticities of gasoline demand are reflected in table 1.
Table 1. The short-run and long-run price elasticites of gasoline
Description gasoline price elasticites short-run -0.12
long-run -.23
the adjustment speed -0.52
In short term and long term the price elasticities of gasoline demand are equal to –0.12 and –0.23. This coefficients showing the percentage change in short- and long-run demand for gasoline due to one percent change in prices of gasoline. Thus if the real price of gasoline increase by one percent, at short term in which the technological improvement in gasoline automobiles is impossible, the consumption of gasoline will decline by
0.12 percent. Consequently the environmental pollution caused by fuel consumption in automobiles will decrease by 0.12 percent every year. In the long-run when improvement in the technology of gasoline automobiles is possible, the annual gasoline consumption will decline by 0.23 percent when it’s real price increase one percent.
So if the share of different kinds of gasoline automobiles remains constant, a one percent increase in the real
price of gasoline will decrease environmental pollution of gasoline automobiles by 0.23 percent.
It is seen that long-run price elasticities of demand for gasoline is very bigger than its short-run elasticities. So decreasing in the amount of pollution emission which is caused by a gasoline price increase due to determining gasoline price according to market mechanism, in long-run is more than in the short-run. Since in the long-run substitution of more efficient automobiles from energy consumption point of view, is possible. So this consequent of estimated model is explainable theoretically and consistent with realized facts.
It is obvious from this description that impact of an increase in the real price of gasoline due to determining gasoline price according to market mechanism is attention able. If by determining gasoline price according to market mechanism, the price of gasoline increase 500%, in the short-run the demand for gasoline will decrease 60% and environment pollution in Iran due to gasoline consumption will decline at the same rate in short-run.
4. Conclusion
Results of estimated model appear that the impact of gasoline pricing on the demand of them in long run in which both free demand and captive demand are affected is greater than short run in which only the free demand is affected. Estimated error correction form of ARDL model for gasoline demand pointed out that price elasticities of demand for this energy carriers in the long-run is very bigger than in the short-run. Thus annual decline of pollution emission due to determining gasoline price according to market mechanism in the long run is more than short-run. Another important result is that the price elasticity of gasoline is high, so the fast rate of growth of consumption of this oil product can be controlled by pricing. Of course other effective tolls must be use for controlling the consumption at the same time.
Price elasticities of demand for gasoline in Iran in the short-run and long-run indicate that by determining gasoline
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price according to market mechanism in Iran the demand for gasoline and environment pollution due to gasoline consumption in this country will decline 60% in short-run. Increasing of gasoline real prices in the beyond of other cultural, social and technical factor can play a great role in decreasing of gasoline consumption and pollution emission.