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Quantitative analysis of optimum corrective fuel tax for road vehicles in Bangladesh: achieving the greenhouse gas reduction goal

Author

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  • Mohammad Haider Kamruzzaman

    (University of Tsukuba)

  • Takeshi Mizunoya

    (University of Tsukuba)

Abstract

This study estimates optimum corrective fuel taxes for Bangladesh and correlates them with climate change policy. First, we use the European road transport emission model (COPERT IV) to precisely estimate the externalities. Second, using the same model, we also estimate the reduction in greenhouse gas emissions caused by the fuel tax. Finally, we develop a correlation between the fuel tax rate and emissions reduction. Our benchmark calculation of the optimum corrective tax is US$0.94 per gallon for gasoline and US$1.46 per gallon for diesel (in 2016 prices). We find that congestion and accident externalities are the two main fuel tax components for Bangladesh. We also find that the net social welfare gain per year is US$302.11 million and the net revenue gain per year is 3.59% of GDP. The corrective diesel tax reduces fuel consumption by 18.10% and increases fuel efficiency by 12.53%. In the benchmark case, corrective fuel taxes reduce GHG emissions by 5.77%. With the combination of the existing gasoline tax and a diesel tax of US$1.20 per gallon, the country’s greenhouse gas reduction goal can be achieved. Policymakers can use fuel taxes to support climate change policy.

Suggested Citation

  • Mohammad Haider Kamruzzaman & Takeshi Mizunoya, 2021. "Quantitative analysis of optimum corrective fuel tax for road vehicles in Bangladesh: achieving the greenhouse gas reduction goal," Asia-Pacific Journal of Regional Science, Springer, vol. 5(1), pages 91-124, February.
    • Handle: RePEc:spr:apjors:v:5:y:2021:i:1:d:10.1007_s41685-020-00173-5
    DOI: 10.1007/s41685-020-00173-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Vehicle emissions; Gasoline tax; Diesel tax; Corrective fuel tax; Welfare gains; Bangladesh;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • N75 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Asia including Middle East
    • R49 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Other

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