Essays on environmental economics and empirical industrial organization in transportation markets: Gasoline demand; low carbon fuel standards; and market power in the rail transport of ethanol

The transportation sector is at the center of many of today's environmental challenges. Issues such as climate change and urban air pollution call for new policies to address environmental externalities. The chapters of this dissertation each deal with a different aspect of environmental policy in transportation markets. The development of environmental policy is subject to political constraints. The rules, regulations and standards that are eventually adopted may have unintended consequences in real-world markets. These essays highlight the challenges that policymakers face in adopting environmental policies.;Understanding the sensitivity of gasoline demand to changes in prices and income has important implications for policies related to climate change, congestion and urban air quality. Chapter 1 documents U.S. gasoline demand during two periods of rising prices from 1975 to 1980 and from 2001 to 2006. The price and income elasticities of demand are estimated in each period. The short-run price elasticities differ considerably and range from -0.034 to -0.077 during 2001 to 2006, versus -0.21 to -0.34 for 1975 to 1980. The estimated short-run income elasticities range from 0.21 to 0.75 and when estimated with the same models are not significantly different between the two periods.;Chapter 2 investigates firm incentives, distributional effects, abatement costs and emissions of low carbon fuel standards (LCFSs). Low carbon fuel standards are a new type of policy aimed at reducing greenhouse gas emissions by regulating the carbon intensity of transportation fuels. This chapter shows that a LCFS implicitly taxes high-carbon fuels and implicitly subsidizes low carbon fuels, possibly leading to an increase in emissions. Furthermore, LCFSs cannot be efficient and result in average abatement costs that are substantially greater than an efficient policy such as a carbon tax or cap and trade system. We simulate a national LCFS on gasoline and ethanol. For a broad range of parameters, emissions decrease; energy prices increase; abatement costs are large (;Chapter 3 provides evidence of market power in the transportation of ethanol used in reformulated gasoline and alternative transportation fuels. I estimate a reduced form model for railroad route-level prices. My identification strategy instruments for railroad entry, controls for selection and explicitly models capacity constraints. A detailed understanding of this industry is important because U.S. energy and environmental policies seek to substantially expand ethanol use. Evidence of market power may alter the types of policies pursued by lawmakers. I find that ethanol shipment prices fall quickly with increased competition. For the first entrant, prices fall by 3% of variable cost. For the second entrant, prices fall by 15% of variable cost. I also find evidence that railroads price discriminate based on environmental regulation at route destinations. Monopolist prices for shipments to carbon monoxide non-attainment areas are 4% higher than shipments to other destinations. This price premium falls sharply with increased competition.