Price and income elasticities of demand for passenger transport fuels in Spain. Implications for public policies

The significant increase in passenger transport activity (cars) experienced by Spain and its associated increase in energy consumption have several associated negative aspects, including a greater dependence on foreign energy sources and higher GHG emissions. Therefore, reducing the level of transport activity would bring important socioeconomic and environmental benefits. The aim of this paper, which focuses on energy consumption in the passenger transport, is fourfold: (1) to provide a diagnostic of energy consumption in the Spanish passenger transport system and the related problems; (2) to develop a model to calculate price and income elasticities of demand for transport fuel; (3) to apply this model to the Spanish passenger transport sector; (4) to infer policy recommendations derived from the results of the diagnostic and the model. It is claimed that, in view of those low price elasticities and high income elasticities and if a reduction in the scale of transport activity is deemed socially desirable, a combination of instruments is necessary. Fuel taxes play an important role within this combination. Apart from their long-term effects, the low price elasticity of demand for transport fuel would allow the collection of a significant amount of revenues, which could eventually be earmarked to encourage reductions in private transport demand and modal shifts with other instruments.