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Carbon Leakage from Fuel Taxes: Evidence from a Natural Experiment

Author

Listed:
  • Jordi J. Teixidó

    (Universitat de Barcelona)

  • F. Javier Palencia-González

    (UNED)

  • José M. Labeaga

    (UNED)

  • Xavier Labandeira

    (Universidade de Vigo and Ecobas)

Abstract

We exploit a fuel tax increase in Portugal to identify its effect on cross-border fuel sales and associated carbon leakage in the Spanish border regions. Using a difference-in-difference strategy, we find that while gasoline sales remained unaffected, diesel sales in Spanish border regions increased by 6–9%. Synthetic control methods confirm these estimates and attribute this differential effect by fuel type to routes frequented by heavy-duty vehicles, with large diesel tanks. We estimate a carbon leakage equivalent to 14–20% of Portugal’s annual mitigation commitment for road transport emissions. Our findings imply that heavy goods vehicles’ strategic behavior undermines the potential mitigation effects and revenue gains of transport climate policy, underscoring the need for coordinated policies in similar federal or quasi-federal contexts.

Suggested Citation

  • Jordi J. Teixidó & F. Javier Palencia-González & José M. Labeaga & Xavier Labandeira, 2024. "Carbon Leakage from Fuel Taxes: Evidence from a Natural Experiment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(12), pages 3235-3270, December.
    • Handle: RePEc:kap:enreec:v:87:y:2024:i:12:d:10.1007_s10640-024-00914-6
    DOI: 10.1007/s10640-024-00914-6
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    More about this item

    Keywords

    Carbon leakage; Fuel tax; Cross-border fuel sales; Carbon price; Road transportation; Climate policy;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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