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Are fuel taxes redundant when an emission tax is introduced for life-cycle emissions?

Author

Listed:
  • Hiroaki Ino

    (School of Economics, Kwansei Gakuin University)

  • Toshihiro Matsumura

    (Institute of Social Science, The University of Tokyo)

Abstract

This study examines the optimal combination of emission and fuel taxes for reducing greenhouse gas emissions in a monopoly market. Greenhouse gases are emitted during both production and consumption stages (life-cycle emissions). We show that when a producer selects fuel efficiency endogenously, an additional strictly positive fuel tax should be imposed even if an optimal emission tax is introduced. Remarkably, the unit cost of fuel should be larger than the marginal social cost of fuel. The results imply that a government may maintain fuel taxes even after introducing an effective emission tax.

Suggested Citation

  • Hiroaki Ino & Toshihiro Matsumura, 2024. "Are fuel taxes redundant when an emission tax is introduced for life-cycle emissions?," Discussion Paper Series 273, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:273
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    References listed on IDEAS

    as
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    2. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-1041, December.
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    6. Ino, Hiroaki & Matsumura, Toshihiro, 2021. "Optimality of emission pricing policies based on emission intensity targets under imperfect competition," Energy Economics, Elsevier, vol. 98(C).
    7. Ino, Hiroaki & Matsumura, Toshihiro, 2021. "Promoting green or restricting gray? An analysis of green portfolio standards," Economics Letters, Elsevier, vol. 198(C).
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    fuel tax; emission tax; optimal taxation; carbon pricing; vehicle industry; fuel efficiency;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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