The distribution of burdens for climate-related increases in fuel costs and the need for compensation

This paper aims to describe the distribution of private car ownership, car use, and fuel consumption in Sweden, and to assess how increased fuel prices resulting from climate policy impact the distribution of fuel expenditure and disposable income. We also estimate the potential need for compensating low-income car owners in rural areas in the event of higher climate taxes on fuels. The analysis is based on detailed administrative data for all adults in Sweden in 2022, including information on private car ownership and car use. The main finding is that individual fuel consumption was highly skewed: approximately 15 percent of car owners account for 50 percent of all fuel consumed by privately owned cars, while the remaining 85 percent account for the other half. Most of these high consumers are found among high-income earners, many of whom reside in rural rather than urban areas. Most high-income earners, however, tend to spend a modest share of their disposable income on fuel, with a median of about 4 percent and a 75th percentile of about 7 percent. Similar expenditure shares are found in most low-income earners, with the striking exception of the lowest income octile. A yearly compensation is calculated as the difference in median fuel costs for owners of fossil-fueled cars residing in rural areas with disposable incomes below the median and the corresponding car owners in large cities. In 2022, the estimated compensation for a tax increase equivalent to EUR 0,5 per liter of fuel ranged from 0 to EUR 80 per year.