The Welfare Effects of Fuel Conservation Policies in the Indian Car Market

Randy Chugh and Maureen Cropper

RFF Working Paper Series from Resources for the Future

Abstract: We estimate a model of vehicle choice and miles driven to analyze the impact of fuel conservation policies in the Indian car market. Taxing diesel fuel to equalize diesel and petrol prices would reduce fuel consumption in the new car market by 7 percent and reduce diesel car sales by 26 percent. A tax on diesel cars with the same sales impact would reduce fuel consumption by only 2 percent. The compensating variation per liter of fuel saved is smaller for the fuel tax than for the car tax; however, the car tax has lower deadweight loss per liter of fuel saved. Our estimates of the long-run elasticities of fuel consumption with respect to fuel prices imply that the CAFE standards contemplated by the Indian government would generate a significant rebound effect. Projected fuel savings are 20 percent if consumers do not adjust to the change in operating costs and less than 9 percent once consumers adjust.

Keywords: Indian car market; fuel conservation; fuel taxes (search for similar items in EconPapers)
JEL-codes: L9 Q48 R48 (search for similar items in EconPapers)
Date: 2014-09-17
New Economics Papers: this item is included in nep-ene and nep-tre
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Citations: View citations in EconPapers (5)

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