Fuel demand, carbon tax and electric vehicle adoption in India's road transport

Abstract

To reduce oil import dependence and carbon emission from road transport, the study estimates the demand for gasoline, high-speed diesel and electric vehicles (EV) in India using non-linear cointegration techniques. The data spans from November 2014 to April 2022. Gasoline, high-speed diesel and EV demand are found to be asymmetric in mean and quantiles, exhibiting extreme tail dependence. Gasoline and high-speed diesel demand are price inelastic, which means that taxation is an ineffective policy instrument to reduce their demand and carbon emissions. However, such taxation could increase the demand for EV. A decrease in electricity prices would also increase the demand for EV while negatively impacting high-speed diesel demand. The study recommends that reducing electricity prices and imposing an additional carbon tax on gasoline and high-speed diesel could encourage electric mobility, eventually reinforcing India’s ‘net zero’ target by 2070. Future studies could focus on forecasting EV demand under different scenarios.