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Carbon tax pass-through: Incidence with vertical integration and price regulation

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  • Wesley Blundell
  • Juan Sebastián Vélez-Velásquez

Abstract

The impact of carbon taxes on consumer welfare and emissions in the transportation sector is influenced by both regulatory and market dynamics. As the sources of climate emissions from transportation evolve, how will this impact change in the future? Utilizing extensive data from retail fuel stations and wholesalers in Colombia, we estimate the factors affecting the pass-through of a carbon tax on gasoline prices. Our findings reveal that the pass-through to Colombian consumers is significant, often exceeding one. This phenomenon of "overshifting" vanishes when markets are regulated or when gas stations are vertically integrated with wholesalers. These results indicate that as the global use of carbon taxes to address climate externalities from automobile use increases, the welfare loss for consumers may be greater than what current literature, often focused on the United States, suggests. **** RESUMEN: El impacto de los impuestos al carbono sobre el bienestar de los consumidores y las emisiones en el sector del transporte está influenciado tanto por la dinámica regulatoria como por la del mercado. A medida que evolucionan las fuentes de emisiones climáticas del transporte, ¿cómo cambiará este impacto en el futuro? Utilizando datos para un amplio número de estaciones de servicio minoristas y mayoristas en Colombia, estimamos los factores que afectan la transferencia de un impuesto al carbono a los precios de la gasolina. Nuestros hallazgos revelan que la transferencia a los consumidores colombianos es significativa, a menudo superior a uno. Este fenómeno de "sobretransferencia" desaparece cuando los mercados están regulados o cuando las estaciones de servicio están integradas verticalmente con los mayoristas. Estos resultados indican que a medida que aumenta el uso global de los impuestos al carbono para abordar las externalidades climáticas del uso del automóvil, la pérdida de bienestar para los consumidores puede ser mayor que lo que sugiere la literatura actual, a menudo centrada en los Estados Unidos.

Suggested Citation

  • Wesley Blundell & Juan Sebastián Vélez-Velásquez, 2024. "Carbon tax pass-through: Incidence with vertical integration and price regulation," Borradores de Economia 1292, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1292
    DOI: 10.32468/be.1292
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    References listed on IDEAS

    as
    1. Jacquelyn Pless & Arthur A. van Benthem, 2019. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 367-401, October.
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    More about this item

    Keywords

    carbon tax; transportation; tax incidence; overshifting; gasoline; Impuesto al carbono; transporte; incidencia de impuestos; sobretransferencia; gas;
    All these keywords.

    JEL classification:

    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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