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The Welfare Effects of Fuel Conservation Policies in the Indian Car Market

Author

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  • Chugh, Randy
  • Cropper, Maureen

    () (Resources for the Future)

Abstract

We estimate a model of vehicle choice and miles driven to analyze the impact of fuel conservation policies in the Indian car market. Taxing diesel fuel to equalize diesel and petrol prices would reduce fuel consumption in the new car market by 7 percent and reduce diesel car sales by 26 percent. A tax on diesel cars with the same sales impact would reduce fuel consumption by only 2 percent. The compensating variation per liter of fuel saved is smaller for the fuel tax than for the car tax; however, the car tax has lower deadweight loss per liter of fuel saved. Our estimates of the long-run elasticities of fuel consumption with respect to fuel prices imply that the CAFE standards contemplated by the Indian government would generate a significant rebound effect. Projected fuel savings are 20 percent if consumers do not adjust to the change in operating costs and less than 9 percent once consumers adjust.

Suggested Citation

  • Chugh, Randy & Cropper, Maureen, 2014. "The Welfare Effects of Fuel Conservation Policies in the Indian Car Market," Discussion Papers dp-14-33, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-14-33
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-14-33.pdf
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    Cited by:

    1. Dimitropoulos, Alexandros & Oueslati, Walid & Sintek, Christina, 2018. "The rebound effect in road transport: A meta-analysis of empirical studies," Energy Economics, Elsevier, vol. 75(C), pages 163-179.
    2. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
    3. repec:kap:enreec:v:69:y:2018:i:1:d:10.1007_s10640-016-0067-6 is not listed on IDEAS

    More about this item

    Keywords

    Indian car market; fuel conservation; fuel taxes;

    JEL classification:

    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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