The Welfare Effects of Fuel Conservation Policies in a Dual-Fuel Car Market: Evidence from India

This paper looks at the possible effects of a fuel conservation policy raising the diesel fuel tax in India to equal that of the tax on petrol. It also looks at the effects of taxing diesel cars more heavily than petrol cars. Using data from 2010 and an econometric model, the authors, estimate new car purchase choices and driving behavior. Five policies are simulated with varying levels of fuel taxes and resulting fuel consumption. For each policy, changes in market shares, total fuel use, driving distances, government revenue, and deadweight loss per liter of fuel conserved is calculated. It is concluded that taxing fuel, rather than cars, results in higher levels of reduced fuel consumption. A tax of 34% on diesel fuel reduces fuel consumption by 7.2%, while a tax on diesel cars of 25% reduces fuel consumption by 2.4%. To explore the welfare effects of diesel fuel taxation, diesel car taxation, and petrol fuel taxation, the authors measure the welfare impacts as the sum of the deadweight loss and the impact on fuel consumption externalities. Externalities include congestion, air pollution, and accidents. The net welfare cost of each simulated policy is calculated.


  • English

Media Info

  • Media Type: Digital/other
  • Edition: Discussion Paper
  • Features: Figures; References; Tables;
  • Pagination: 39p

Subject/Index Terms

Filing Info

  • Accession Number: 01647980
  • Record Type: Publication
  • Report/Paper Numbers: RFF DP 14-33-REV
  • Files: TRIS
  • Created Date: Oct 3 2017 11:17AM