Distributional effects of carbon pricing by transport fuel taxation

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We introduce a new microsimulation model built on household transport data to study the distributional effects of carbon-based fuel taxation of private road transport in Germany. Our data includes car-specific annual mileage, fuel efficiency, and the distinction between fuel types, allowing for a very detailed analysis. The model enables focusing on different household types as well as identifying effect heterogeneity across the income distribution. We compare the recent fuel tax scheme with three policy reform scenarios to empirically test several hypotheses regarding distributional effects of carbon pricing. We find that the legal status quo of the fuel tax has overall regressive effects, with the tax on petrol being regressive and the tax on diesel being progressive. A transformation of the current tax into a revenue-neutral carbon-harmonised fuel tax yields a progressive distributional effect, while an introduction of a new carbon tax on transport fuels is neither clearly regressive nor progressive. Combining both tax schemes also has non-regressive effects. On aggregate, the distributional effects are modest. Subgroup analyses, however, reveal that the individual burden can be substantial. In sum, our results suggest that policy makers face various options for pricing road transport greenhouse gas emissions without causing an overall disproportionate tax burden on low-income households.
Original languageEnglish
Article number106290
JournalEnergy Economics
Volume114
ISSN0140-9883
DOIs
Publication statusPublished - 01.10.2022

Bibliographical note

Publisher Copyright:
© 2022 Elsevier B.V.

    Research areas

  • Economics - Carbon pricing, Fuel tax, Distributional effects, Road transport, Microsimulation, Ex-ante impact assessment