Heterogeneity of demand responses in modelling the distributional consequences of tradable carbon permits in the road transport sector

Panel: Panel 8: Transport and mobility

Authors:
Zia Wadud, Centre for Transport Studies, Imperial College London
Robert B Noland, Centre for Transport Studies, Imperial College London
Daniel J Graham, Centre for Transport Studies, Imperial College London

Abstract

Personal road transport sector is one of the largest and fastest growing sources of CO2 emissions. This paper investigates a tradable permit policy for mitigating carbon emissions from personal road transport and discusses various issues of permit allocation. As tradable permits will effectively raise the price of fuel, the policy has important distributional implications. The distribution of burden depends on permit allocation strategies and on the consumer response to an increase in price. The behavioural response may vary among different segments of the population depending on their travel needs, which in turn are contingent upon their income, location of residence and other factors. Consumer Expenditure Survey micro dataset from 1997 to 2002 has been used to econometrically model the possible variation of price elasticity for different socio-economic groups in the USA. Results indicate that the response of gasoline demand to a change in price does depend on income level or location of the household. Distributional impacts of the tradable permit policy are then evaluated using the micro dataset for year 2002. In this regard, different permit allocation schemes are considered in the analysis. Impacts on households owning a vehicle and households with no vehicles have been evaluated as well.