Strategic assessment of fuel taxation in energy conservation and CO2 reduction for road transportation: a case study from China

Road transportation has attracted extensive attention throughout the world because of its high energy demands and numerous externalities. Sustainable road transportation has thus become a great challenge for politicians and decision-makers all over the world. There have been a series of studies indicating that appropriate pricing of fuel can be both effective and efficient for reducing overconsumption of transport fuel. However, relatively little research has been done on fuel price approaches in developing country contexts. For a country like China, where road traffic today is growing more than in other countries, there is a strategic interest to do more economic analyses of fair and efficient pricing of fuel. In this study, we present a strategic assessment of fuel pricing in energy conservation and CO2 reduction from road transportation in China, both in a retrospective and a prospective perspective. First of all, the correlation between fuel price and road transport gasoline demand, based upon data from 1995 to 2007, was examined with an econometric model. Secondly, on basis of the elasticity model, the potential reductions with respect to fuel demand and Green House Gas (GHG) emissions as a consequence of a strategic fuel tax implementation in China were examined up to 2030. The results indicate that such strategic fuel taxation can play a considerable role in steering the growth of road transport gasoline demand, and thus also Chinese GHG emissions.