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

Hiroaki Ino and Toshihiro Matsumura

Economics Letters, 2024, vol. 241, issue C

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 present a case in which a government should impose an additional strictly positive fuel tax, even when an optimal emission tax is introduced: the case of a producer selecting fuel efficiency endogenously. 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 and be able to construct a socially desirable tax structure by using existing taxes.

Keywords: Fuel tax; Emission tax; Optimal taxation; Carbon pricing; Vehicle industry; Fuel efficiency (search for similar items in EconPapers)
JEL-codes: H23 L51 Q48 Q58 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Are fuel taxes redundant when an emission tax is introduced for life-cycle emissions? (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:241:y:2024:i:c:s0165176524003264

DOI: 10.1016/j.econlet.2024.111842

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