A possible role for discriminatory fuel duty in reducing the emissions from road transport: some UK evidence

Abstract

It is shown that the relative demands for gasoline and diesel fuels are price-responsive. Given the differing emissions-based externalities from these two fuel types, it is contended that discriminatory fuel duty might be a means to reduce these externalities. Results are derived from an Almost Ideal Demand System with time-varying technological progress, estimated using a bootstrap procedure given the nonnormalities and relative small sample sizes.

Keywords:

• AIDS model
• technology biases
• time-varying parameter

JEL Classification:

• Q40
• R40

Acknowledgements

We are grateful for discussion and comments received at the Research Institute of Economics and Management 2011 winter meeting which helped to improve the quality of this article.

Notes

¹ National Statistics on electricity used for road transport show penetration at merely 0.4% of total energy for transport since 2004. There is ongoing and considerable progress in the development of hybrid engine technologies, which in current forms harvest energy from the kinetic motion of the vehicle and/or under braking. Greater adoption of such vehicles in the economy may create statistical identification problems, although this is not considered further here given the limited representation in the vehicle fleet.

² The price of gasoline is a weighted-average variable over all types/grades of gasoline. Prices are deflated to 2000 prices.

³ Following Deaton and Muellbauer (1980) and Buse (1994), collinearity in prices justifies the use of the Stone price index.

⁴ Noting a correction to the compensated cross-price elasticity formula reported by De Mello et al. (2002).