Road fuel demand and regional effects of carbon taxes in Sweden

• Published in: Energy policy 2020-09, Vol.144, p.111648, Article 111648
• Main Authors: Tirkaso, Wondmagegn Tafesse, Gren, Ing-Marie
• Format: Article
• Language: English
• Subjects: Carbon tax; Dynamic panel data; Economics; Elasticity; Fuel demand; Nationalekonomi; Region; Sweden
• ISSN: 0301-4215; 1873-6777; 1873-6777
• DOI: 10.1016/j.enpol.2020.111648

This study estimated national and regional-level gasoline and diesel demand elasticities in Sweden using county-level panel data from 2001 to 2018. The estimated elasticities were used to calculate county cost effect of the Swedish CO2 emission reduction policy in the transport sector. The national-level elasticities were estimated by employing general method of moments (GMM) estimators, while county-level elasticities were calculated by considering the weight of each fuel type share at county and national levels. Own prices, per capita income, and per capita vehicle stocks were statistically significant at national level in determining gasoline and diesel demand. The calculated regional price elasticities showed variation between counties, with the highest being almost 4 times higher than the lowest in absolute terms. A simulation of fuel taxes to achieve the Swedish 2030 emission target for the transport sector under the national and regional price elasticities indicated minor differences at the national level with respect to CO2 taxes, costs and regressivity in the taxes. The results showed considerable differences at the regional level where costs and carbon tax payments can be considerably higher for some counties with the use of national price elasticities and the opposite is the case for other counties. •The effectiveness of carbon tax depends on the consumer's reaction to the price changes.•There is a considerable difference in the elasticity estimates across regions in a country.•Consideration of regional heterogeneity in terms of elasticities is important when the carbon tax is implemented.