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From fuel taxation to efficiency standards: A wrong turn in European climate protection?

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  • Vance, Colin
  • Frondel, Manuel

Abstract

Using household travel diary data collected in Germany between 1997 and 2012, we employ an instrumental variable (IV) approach that enables us to consistently estimate both fuel price and efficiency elasticities at once. The aim is to gauge the relative impacts of fuel economy standards and fuel taxes on distance traveled. We find that the magnitude of the elasticity estimates are statistically indistinguishable: higher fuel prices reduce driving by the same degree as higher fuel efficiency increases driving. This finding indicates an offsetting effect of fuel efficiency standards on the effectiveness of fuel taxation, calling into question the efficacy of the European Commission's current efforts to legislate CO2 emissions limits for new cars given prevailing high fuel taxes. The ecological implications of this legislation for emissions reductions is explored through a simple numerical simulation using the econometric estimates.

Suggested Citation

  • Vance, Colin & Frondel, Manuel, 2015. "From fuel taxation to efficiency standards: A wrong turn in European climate protection?," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113171, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc15:113171
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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