The distribution of burdens for climate-related increases in fuel costs and the need for compensation

Roger Pyddoke (), Nanna Fukushima () and Emma From
Additional contact information
Roger Pyddoke: Swedish National Road and Transport Research Institute (VTI), Postal: VTI, Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden, https://www.vti.se/en/employees/roger-pyddoke
Nanna Fukushima: Swedish National Road and Transport Research Institute (VTI), Postal: VTI, Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden, https://www.vti.se/en/employees/nanna-fukushima
Emma From: Swedish National Road and Transport Research Institute (VTI), Postal: VTI, Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden

No 2025:4, Working Papers from Swedish National Road & Transport Research Institute (VTI)

Abstract: While opinion polls indicate broad support for climate policy in Europe, support for higher fuel prices is weaker due to concerns about fairness and effectiveness. This paper examines the income and geographic distribution of private car ownership and fuel consumption and evaluates compensation policies associated with higher fuel taxes using Swedish administrative data covering all adults in 2022. We find that, regardless of income or area of residence, most car owners devote only a modest share of disposable income to fuel, a minority accounts for a disproportionately high share of fuel consumption. Electric vehicle adoption is, however, strongly concentrated among high-income individuals, suggesting unequal ability to mitigate the effects of higher fuel taxes through technological transition. We analyse two simple compensation schemes designed to preserve incentives to reduce fossil-fuel dependence while compensating low-income car owners most affected by higher fuel prices. We find that compensation targeted at low-income rural car owners for consumption above that of comparable urban residents generates only limited transfers because differences in median fuel consumption between rural and urban car owners are considerably smaller than often assumed. The fiscal costs of both compensation schemes are small relative to tax revenue.

Keywords: Climate policy; fuel tax; car ownership; fuel consumption; income distribution; spatial distribution; compensation (search for similar items in EconPapers)
JEL-codes: D31 H23 Q52 R12 R48 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025-09-01, Revised 2026-10-05
New Economics Papers: this item is included in nep-ene, nep-env, nep-tre and nep-ure
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.transportportal.se/VTISWoPEc/VTI%202025%204.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:vtiwps:2025_004

Access Statistics for this paper

More papers in Working Papers from Swedish National Road & Transport Research Institute (VTI) VTI, Transport Economics, P.O. Box 6056, SE-171 06 Solna, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Transportbiblioteket () and Emil Svensson () and Tova Äng ().