Geographic variation in fuel flexibility: implications for the regional incidence of oil supply disruptions

Technical Report · Sun Apr 01 04:00:00 EST 1984

OSTI ID:6524175

Macauley, M K

This paper indicates that regional patterns of private investment in fuel-switching capability are explained by geographic differences in economic incentives and regulatory constraints on fuel use and fuel supplies. From a broader perspective of the effect of interfuel substitutability on the demand for oil, these disparities imply that the incidence of the costs of an oil import supply disruption will also vary regionally. Consequently, energy policy designed to ensure a welfare-optimal level of shockproofing may need to accommodate interregional differences. In this regard, federally funded regional petroleum reserves have been suggested to shockproof particular areas against disruptions. The advantage of regional storage is not obvious, however. The effect of reserves, irrespective of storage location, is to reduce price uncertainty which otherwise induces investment in fuel-flexible capital. Policymakers must evaluate the marginal costs and benefits of the location of reserves in terms of the effect of their delivered price on income redistribution, and the existence of reserves, irrespective of their storage locale, in terms of their effect on alternative shockproofing activities. Federal government intervention specifically to encourage fuel flexibility may also be economically inefficient or indiscriminately income redistributive or both unless geographic variation in resource endowments and the effects of existing regulatory constraints on energy markets are taken into account. In addition, identifying interregional differences in order to accommodate them in federal legislation for either investment tax credits or even detailed geographic strategic petroleum reserve allocations, say, is likely to be administratively costly. The implication is that policy to encourage nonoil fuel use or fuel flexibility may be better implemented at a more local rather than at the federal level. 44 references, 4 figures, 9 tables.

• Research Organization: Resources for the Future, Inc., Washington, DC (USA)
• DOE Contract Number: AC01-80PE70267
• OSTI ID: 6524175
• Report Number(s): DOE/PE/70267-T8; ON: DE85001582
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020700* -- Petroleum-- Economics
Industrial
& Business Aspects
021000 -- Petroleum-- Legislation & Regulations
ECONOMICS
ENERGY SOURCES
ENERGY SUPPLIES
FOSSIL FUELS
FUEL SUBSTITUTION
FUEL SUPPLIES
FUELS
GEOGRAPHICAL VARIATIONS
INSTITUTIONAL FACTORS
LEGISLATION
NATIONAL GOVERNMENT
PETROLEUM
PRICES
RESERVES
RESOURCES
SUPPLY DISRUPTION
VARIATIONS