Document Type

Honors Thesis

Major

Economics, Political Science

Advisor(s)

Jonathan Rubin

Committee Members

Adam Daigneault, Caroline L. Noblet, Stephanie Welcomer, Kristin Vekasi

Graduation Year

May 2021

Publication Date

Spring 5-2021

Abstract

In December 2020, a memorandum of understanding (MOU) was released by the Transportation and Climate Initiative Program (TCI-P), a collaboration of 13 jurisdictions in the New England and Mid-Atlantic regions of the United States. Modeled on the Regional Greenhouse Gas Initiative (RGGI), the TCI-P follows a cap-and-invest framework to reduce emissions from the transportation sector by 26% from 2022 to 2032. Since the TCI-P is expected to raise the price of gasoline by 5¢ to 9¢ per gallon, there has been concern that some populations may be disproportionately affected. The present research studies the potential heterogeneous impacts of the TCI-P on rural and urban populations within the state of Maine. The author hypothesizes that rural Mainers will be more sensitive (i.e., elastic) to changes in the price of gasoline, and that ultimately they will bear a disproportionate burden from the TCI-P.

Research methods rely on a short-run household price elasticity of demand estimate from Spiller, Stephens, and Chen (2017), which is adapted to reflect the demographic characteristics of rural and urban households in Maine. Elasticities are weighted according to their relative importance. Reductions in households’ transportation emissions are calculated for each population, along with the economic loss and burden, to reveal the expected heterogeneous impacts of the TCI-P in Maine. Results find a short- run, weighted elasticity for rural households of -0.97. The adapted elasticity for urban households is found to be -0.75, for a Maine average of -0.87. Given price increases of 5¢ or 9¢, rural households are shown to face relatively small but disproportionate economic losses and burdens as compared to urban households. The additional cost to rural households is estimated to range from $52 to $92 per year, while the cost to urban households is estimated to range from $51 to $91 per year. These costs represent between 2% and 4% of fuel expenditures for the average Maine household. The economic burden of a 9¢ increase in the price of gasoline amounts to approximately 2% of the variable costs of driving a used vehicle and just 1% of the total driving costs of a used vehicle. The median household income in rural and urban Maine is $53,701 and $60,571, respectively.

The author concludes with a series of investment portfolios and messaging and communication strategies that have the potential to increase public support for the TCI-P. This research provides key insights into potential heterogeneous impacts on Maine households while contributing to the public discourse on an important topic in climate policy.

Additional Files
Maine elasticity estimate_Somes,William.xlsx (115 kB)
Maine Elasticity Estimate Excel
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