From Taxes to Transition: The Impact of the Swiss Co2 Levy on Residential Heating Energy Demand

This paper assesses the impact of the Swiss CO2 levy on residential heating energy demand and the associated CO2 emissions. Using the synthetic control method, the results show that the levy led to an average annual reduction in CO2 emissions of 6.5% during the post-treatment period (2008-2021), corresponding to a decrease of 0.1 metric tons of CO2 per capita per year. Furthermore, the empirically estimated price elasticities for heating oil indicate that the short-run elasticity for the retail price is -0.055, while the elasticity for the CO2 levy is -1.264, demonstrating that consumers respond more strongly to policy-induced price changes than to market-driven price changes. In the long run, these elasticities increase to -0.064 (retail price) and -1.471 (levy), highlighting that over time, households adjust their demand more significantly in response to sustained price changes. A similar pattern is observed for natural gas, with short-run elasticities of -0.261 (retail) and -0.623 (levy), increasing to -0.521 and -1.241, respectively, in the long run. These findings provide robust evidence that the Swiss CO2 levy is an effective instrument for reducing emissions in the residential heating sector. The results underline the importance of policy-induced price instruments and highlight the necessity of high levy rates to ensure a measurable impact on consumption behavior.