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Future Pain at the Diesel Pump? Potential Effects of the European Commission's Energy Taxation Proposal

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  • Frondel, Manuel
  • Vance, Colin

Abstract

The Energy Tax Directive recently proposed by the European Commission envisages to tax fuels based on their energy content. By raising prices for diesel to a level higher than that of petrol, this proposal would eliminate the price advantage currently enjoyed by diesel in most EU Member States. To explore the implications of such a tax regime for automobile travel, the present analysis undertakes a comparative analysis of price elasticities for both fuel types. Drawing on household panel data from Germany, we fail to reject the hypothesis that the fuel price elasticities for petrol and diesel are equal. With our uniform fuel price elasticity estimates being on the order of -0.5 to -0.42, the typical finding from the empirical literature that the elasticities gleaned from household-level data are generally larger than those from aggregate time-series data is reconfirmed.

Suggested Citation

  • Frondel, Manuel & Vance, Colin, 2011. "Future Pain at the Diesel Pump? Potential Effects of the European Commission's Energy Taxation Proposal," Ruhr Economic Papers 280, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:280
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    References listed on IDEAS

    as
    1. Manuel Frondel & Jorg Peters & Colin Vance, 2008. "Identifying the Rebound: Evidence from a German Household Panel," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 145-164.
    2. Frondel, Manuel & Schmidt, Christoph M. & Vance, Colin, 2011. "A regression on climate policy: The European Commission’s legislation to reduce CO2 emissions from automobiles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(10), pages 1043-1051.
    3. Sterner, Thomas, 2007. "Fuel taxes: An important instrument for climate policy," Energy Policy, Elsevier, vol. 35(6), pages 3194-3202, June.
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    5. Daniel J. Graham & Stephen Glaister, 2002. "The Demand for Automobile Fuel: A Survey of Elasticities," Journal of Transport Economics and Policy, University of Bath, vol. 36(1), pages 1-25, January.
    6. Binswanger, Mathias, 2001. "Technological progress and sustainable development: what about the rebound effect?," Ecological Economics, Elsevier, vol. 36(1), pages 119-132, January.
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    More about this item

    Keywords

    Fuel taxation; fuel price elasticities; household data; automobile travel; panel;
    All these keywords.

    JEL classification:

    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Y10 - Miscellaneous Categories - - Data: Tables and Charts - - - Data: Tables and Charts

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