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

Resources for the Future Discussion Paper 14-33

37 Pages Posted: 14 Dec 2014

See all articles by Randy Chugh

Randy Chugh

Government of the United States of America - Department of Justice

Maureen Cropper

University of Maryland - Department of Economics; Resources for the Future

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2014

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

JEL Classification: L9, R48, Q48

Suggested Citation

Chugh, Randy and Cropper, Maureen L., The Welfare Effects of Fuel Conservation Policies in the Indian Car Market (September 15, 2014). Resources for the Future Discussion Paper 14-33, Available at SSRN: https://ssrn.com/abstract=2537909 or http://dx.doi.org/10.2139/ssrn.2537909

Randy Chugh

Government of the United States of America - Department of Justice ( email )

Maureen L. Cropper (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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