Fossil Fuel Prices and AirPollution : Evidence from a Panel of 133 Countries

Fossil fuel combustion is a major contributor to urban air pollution, which in turn can leadto negative health outcomes. While the relationship between fuel prices and consumption has been extensively documented,the knock-on impact on air quality is less studied. Detailed knowledge on the price-pollution channel is valuable indesigning effective pollution reduction measures. This paper analyzes the impact of gasoline, diesel, and coal prices onair pollution in 133 countries over a 19-year period. The dataset combines prices, consumption, country-specificvariables, and annual average fine particulate matter concentrations in each country’s capital city. Using thecommon correlated effects estimator, the analysis finds a robust negative relationship between gasoline and dieselprices and particle concentrations. A US$1 increase in the average annual retail price of these common transport fuelsis associated with at least a 22.2 microgram per cubic meter decrease in annual average fine particulate matterconcentrations. In contrast, there is no significant effect for coal, which is often used in power generation andindustrial applications, making it less responsive to short-term price variations. Overall, the results are inline with earlier studies, as price increases are correlated with improved urban air quality for transport fuels.