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Study finds higher gasoline taxes do not disproportionately impact the poor, especially in developing countries

Although increased gasoline taxation has been proposed as a very effective instrument to reduce greenhouse gas emissions, a common argument against such a measure is that it is regressive—i.e., it hits poor people the hardest. However, a new study by researchers at the University of Gothenburg (Sweden) finds that middle- and high-income earners are generally affected the most by gasoline taxes, especially in poor countries, rather than poor people.

Petrol taxes are effective and actually don’t affect poor people disproportionally. Powerful lobbyists have tried to undermine the whole idea of petrol taxes, claiming that the effects are too hard on the poor. Our results contradict this view, especially with respect to developing countries.

—Thomas Sterner, Professor of Environmental Economics at the University of Gothenburg

Sterner is lead author in the UN climate panel’s (IPCC) working group Mitigation of Climate Change. Sterner is also the editor of the new book Fuel Taxes and the Poor, The Distributional Effects of Gasoline Taxation and Their Implications for Climate Policy, authored by 35 researchers.

The researchers studied data from 25 different countries to investigate the concern that gasoline taxes affect poor people the most. The team included leading researchers from China, India, Indonesia, USA, Latin America, as well as many countries in Africa and Europe.

The reason why the global climate negotiations are so slow has to do with global justice. Poor nations have not caused climate change and they want to be compensated rather than being forced to pay for adaptation and mitigation; they want their share of the atmospheric commons. Our research shows however, that increased fuel taxes are not, per se, incompatible with sustainable growth, reduced poverty and an improved climate.

—Thomas Sterner

The researchers conclude that although in some high-income countries, particularly the US, gasoline taxes may indeed be regressive and affect the poor more, in most countries, and particularly in the poor, it is the middle-and high-income earners who are generally hit harder.

India, China and many African countries are examples where cars and fuels are luxury products. In many European countries such as Sweden, the gasoline tax is roughly neutral.

Sterner emphasizes that international climate negotiators should emphasize global justice and pay attention to distributional effects. “An increased petrol tax effectively reduces emissions of greenhouse gases from the transport sector, at the same time as it exemplifies these justice aspects.

Resources

  • Fuel Taxes and the Poor, The Distributional Effects of Gasoline Taxation and Their Implications for Climate Policy (2011) Published by RFF Press with Environment for Development initiative. Edited By Thomas Sterner.

Comments

HarveyD

Yes, (normally) poorer people ar less affected by higher fuel taxes because they drive smaller cars or do not drive or own a car. USA is an exception where poorer people drive older larger gas guzzlers because they cannot afford to buy a new more efficient vehicle.

Good news for future lighter electrified vehicles. A new Aluminium ore (bauxite) and rare earth mine will open shortly in eastern Canada and will produce enough bauxite and rare earth to supply the EV Canadian market for the next 25 years.

This may be the first of many more similar mines. Ten such mines could supply 100+% of the USA market for 25+ years.

Scott

I take issue with this, as the impacts of high rates of fuel duty and VAT are becoming very apparent in the UK. One wonder's what the agenda is behind this study. If it's to justify higher fuel taxes, then of course the conclusions are going to be skewed, especially if its being led by the autophobic side of the academic spectrum. It seems to be a case of making the study fit the conclusion.

Experience recorded by FairFuelUK is finding that a lot of households are spending more than a tenth of their income on fuel, because petrol averages £1.34 per litre. This equates to $7.65 per US gallon. Diesel costs around £1.44 per litre ($8.20 per US gallon). This is the official definition of fuel poverty.

Fuel duty has a purpose, BUT there has to be a level of FAIRNESS. In the UK, fuel duty passed a fair level a long time ago. So, instead of persuading people to buy smaller cars, its now pricing people out of them completely.

Then there's the hidden impacts: higher transportation costs, which inflates retail prices. There's an increase in both the petty and organised theft of fuel, including the theft of heating oil which is being sold on illegally as Diesel. People are also running their cars on illegal agricultural Diesel. To further extremes people are risking their own safety by diverting money for servicing their vehicles into fuel instead, or worse avoid paying annual vehicle tax or even car insurance (which has also skyrocketed)

Ask most people if they'd be happy paying $120 to fill the average tank and I don't think you'd get many people saying yes, except for the autophobic.

HarveyD

Many good points Scott. However, high fuel cost existed in EU before the current economic crisis. It certainly had less effects 5 years ago than today. Yes, more and more people have to make hard choices in many countries.

Future Tata low cost EVs may come to the rescue in about 5 years or so.

HarveyD

Aluminium @ $0.88/lb would be rather affordable for well designed, much lighter weight, future EVs. The cost differential versus high quality steel for body, frame, wheels etc could be well under $1000 and could be offset with smaller batteries/e-motors/controllers etc.

There is no worldwide shortage of aluminium and the price is rather steady.

Thomas Lankester

@Scott
How can the level of fuel duty affect fairness? If I live in a rural community with minimal public transport even a 1p per L fuel duty may be construed as unfair. Increasing the fuel duty does not make it less 'fair' than it already was.

Fuel duty is a somewhat blunt instrument justified on the basis that it is easy to administer. Any fairer system (e.g. differential road pricing) will be more complicated to administer and won't address a fundamental problem with fairness - it is, to a degree, subjective and perspective dependent.

Higher Vehicle Excise Duty on cars with higher CO2 emissions per km would seem to be more fair to most but there will always be some monster 4x4s stuffed full of passengers which have lower emissions per passenger km than a fuel sipping micro-car perennially driving around with one occupant. Then again, from a 'polluter pays' perspective, a fuel duty is perfectly fair as one pays in proportion to the pollution one is responsible for. I could argue for, or against, most emissions charges simply by flipping my perspective.

I think your labelling of the 'autophobic side' is off. The truly auto-phobic would be pushing a public transport, walking cycling agenda. A shift to lower emissions cars does not 'help' the real auto-phobes. Getting mown down by an electric car probably hurts just as much as getting mown down by a petrol one!

HarveyD

Fairness is probably the most difficult state to describe or achieve. Well being would be next in line. UNO has tried to define both for years and is not sure of any tangible results.

What was claimed to be fair 200+ years ago has turned out to be a huge farce. People will always try and manage to twist, modify, sabotage and ruin all well intended systems and constitutions. USA is one of the best example of how a basically well intended constitution, written to correct middle ages flaws and injustices, was progressively contaminated to boomerang to the same inequalities it was suppose to correct and eliminate 230 years ago.

Will somebody come up will a better system or could the current one be modified to do what it was originally intended to do?

ToppaTom

I think that Aluminium @ $0.88/lb would be rather affordable for well designed, much lighter weight, governments.

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