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Are fuel taxes redundant when an emission tax is introduced for life-cycle emissions?

Author

Listed:
  • Hiroaki Ino

    (School of Economics, Kwansei Gakuin University)

  • Toshihiro Matsumura

    (Institute of Social Science, The University of Tokyo)

Abstract

This study examines the optimal combination of emission and fuel taxes for reducing greenhouse gas emissions in a monopoly market. Greenhouse gases are emitted during both production and consumption stages (life-cycle emissions). We show that when a producer selects fuel efficiency endogenously, an additional strictly positive fuel tax should be imposed even if an optimal emission tax is introduced. Remarkably, the unit cost of fuel should be larger than the marginal social cost of fuel. The results imply that a government may maintain fuel taxes even after introducing an effective emission tax.

Suggested Citation

  • Hiroaki Ino & Toshihiro Matsumura, 2024. "Are fuel taxes redundant when an emission tax is introduced for life-cycle emissions?," Discussion Paper Series 273, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:273
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    References listed on IDEAS

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    1. Ching-to Ma & James Burgess, 1993. "Quality competition, welfare, and regulation," Journal of Economics, Springer, vol. 58(2), pages 153-173, June.
    2. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-1041, December.
    3. West, Jeremy & Hoekstra, Mark & Meer, Jonathan & Puller, Steven L., 2017. "Vehicle miles (not) traveled: Fuel economy requirements, vehicle characteristics, and household driving," Journal of Public Economics, Elsevier, vol. 145(C), pages 65-81.
    4. Meredith Fowlie & Mar Reguant & Stephen P. Ryan, 2016. "Market-Based Emissions Regulation and Industry Dynamics," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 249-302.
    5. Fullerton, Don & West, Sarah E., 2002. "Can Taxes on Cars and on Gasoline Mimic an Unavailable Tax on Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 135-157, January.
    6. Ino, Hiroaki & Matsumura, Toshihiro, 2021. "Optimality of emission pricing policies based on emission intensity targets under imperfect competition," Energy Economics, Elsevier, vol. 98(C).
    7. Ino, Hiroaki & Matsumura, Toshihiro, 2021. "Promoting green or restricting gray? An analysis of green portfolio standards," Economics Letters, Elsevier, vol. 198(C).
    8. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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    Cited by:

    1. Liu, Yi & Matsumura, Toshihiro, 2025. "Fuel diversification among firms and common ownership," MPRA Paper 125747, University Library of Munich, Germany.

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    Keywords

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    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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