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

Hiroaki Ino and Toshihiro Matsumura

No 273, Discussion Paper Series from School of Economics, Kwansei Gakuin University

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.

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)
Pages: 11 pages
Date: 2024-05
New Economics Papers: this item is included in nep-ene, nep-env, nep-pub and nep-tre
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http://192.218.163.163/RePEc/pdf/kgdp273.pdf First version, 2024 (application/pdf)

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Journal Article: Are fuel taxes redundant when an emission tax is introduced for life-cycle emissions? (2024)
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