Last week, Stanford's Board of Trustees announced that the university would not directly invest funds from its endowment in coal mining companies.  Even the strongest advocates of this action acknowledge that it is a symbolic gesture with little direct effect on the coal industry or global greenhouse gas emissions.  But if a university administration wants to take symbolic (or real) action on climate change, is coal investment a wise choice?

From 1996 to 2006, China’s oil consumption growth far exceeded that of all major consuming countries. China’s average growth in oil consumption over the time period 2000 to 2006 was estimated to be approximately 8 percent per year, up from 6 percent per year from 1996 to 2000. One factor alleged to have caused this rapid increase in the growth of oil consumption in China is the under-pricing of oil to domestic consumers--selling oil-derived products such as gasoline and diesel fuel domestically at prices that are less than the world oil price plus the cost of producing that product. We explore validity of this claim, quantify the extent to which oil domestic oil consumption is subsidized by the Chinese government, and assess the impact of these subsidies on China’s demand for oil. We find economically significant evidence of under-pricing of gasoline and diesel fuel by China relative to the US over our sample period of January 2005 to July 2008 for all of the approaches to computing the comparable price of these products for the two countries. We estimate that underpricing of oil in the form of gasoline and diesel fuel in China resulted in a total subsidy to Chinese consumers of between 5 and 15 billion dollars in 2007. We also analyze the likely change in the consumption of gasoline and diesel in 2007 that would result from the elimination of this underpricing and find that it had little impact on gasoline and diesel fuel consumption for short-run own-price elasticities in the range of recent estimates of these magnitudes from cross country studies.

A spatial equilibrium model of the world coal market is developed that accounts for coal to natural gas switching in the electricity sector in the United States and Europe, the potential for China to exercise monoposony power in its coal purchasing behavior, and the impact of increasing the western US coal export port capacity. The global coal market equilibrium is computed as the solution to a nonlinear complementarity problem. Where possible parameters of the model are estimated econometrically. Where this is not possible the parameters are calibrated to global coal market outcomes in 2011. The model is used to assess how the shale gas boom in the United States impacts global coal market outcomes for dierent models of Chinese coal buyers' purchasing behavior and dierent scenarios for the capacity of coal export terminals on the US west coast.  Although reductions in US and European natural gas prices reduce coal consumption in the US and Europe, the percentage reduction in coal consumption in Europe is much less than that in the US. Increasing US west coast port capacity increases coal exports from the western US and reduces Chinese coal production. US coal prices increase which causes more coal to natural gas switching in the US, further reducing global greenhouse gas emissions. Modeling China as a monopsony buyer of coal reduces the absolute magnitude of these impacts.

Recent behavioral models of reference-dependent or context-dependent preferences have posited that consumers form reference points or consideration sets based on expectations. We investigate this hypothesis empirically within the retail gasoline market. Given that gasoline consumers have been shown to form price expectations based on past price lev- els, reference- or context-dependence would likely cause gasoline demand to become more price-sensitive when prices are high relative to the recent past (i.e., higher than expected). Consistent with these predictions, we find that gasoline demand in the U.S. is up to three times more elastic when prices rise above their average over the previous year than when prices fall below this average. Reference-price effects vary substantially across cities with different demographic and commuting patterns, and cities that have less elastic demand for gasoline are shown to exhibit greater asymmetry in demand responsiveness. These findings provide valuable new evidence to support recent developments in the behavioral litera- ture and also broaden our understanding of the factors affecting temporal and geographic heterogeneity in the price responsiveness of gasoline demand and the influence of price volatility on overall gasoline consumption.