The Welfare Effects of Fuel Conservation Policies in a Dual-Fuel Car Market: Evidence from India

Randy Chugh, Maureen L. Cropper

NBER Working Paper No. 20460
Issued in September 2014, Revised in January 2017
NBER Program(s):Environment and Energy Economics

We estimate a model of vehicle choice and kilometers driven to analyze the long-run impacts of fuel conservation policies in the Indian car market. We simulate the effects of petrol and diesel fuel taxes and a diesel car tax, taking into account their interactions with the pre-existing petrol fuel tax and car sales taxes. At levels sufficient to reduce total fuel consumption by 7%, the increased diesel and petrol fuel taxes both yield deadweight losses (net of externalities) of about 4 (2010) Rs./L. However, at levels sufficient to reduce total fuel consumption by 2%, the increased petrol fuel tax results in a deadweight loss per liter of fuel conserved that is greater than that caused by the diesel fuel tax. This reflects both the high pre-existing tax on petrol fuel and the high own-price elasticities of fuel demand in India. A tax on diesel cars that results in the same diesel market share as the large diesel fuel tax actually has a negative deadweight loss per liter of fuel conserved. The welfare effects of all three policy instruments are positive, once the external benefits of reducing fuel consumption are added to the excess burden of taxation.

download in pdf format
   (1032 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20460

Published: Randy Chugh & Maureen Cropper, 2017. "The welfare effects of fuel conservation policies in a dual-fuel car market: Evidence from India," Journal of Environmental Economics and Management, . citation courtesy of

Users who downloaded this paper also downloaded* these:
Chugh, Cropper, and Narain w16987 The Cost of Fuel Economy in the Indian Passenger Vehicle Market
Allcott w20363 Paternalism and Energy Efficiency: An Overview
Kahn and Walsh w20503 Cities and the Environment
Acemoglu, Akcigit, Hanley, and Kerr w20743 Transition to Clean Technology
Wichman, Taylor, and von Haefen w20466 Conservation Policies: Who Responds to Price and Who Responds to Prescription?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us