What Does Improved Fuel Economy Cost Consumers and What Does it Cost Taxpayers?

“Green growth” is an emerging paradigm that integrates several policy aspirations, including the durability of economic activity, reduced environmental impacts, and sustained growth in high-quality employment in such a way as to foster coherent, cross-sectoral policy design. Focusing on “green growth” highlights the need for governments to assess policies on their long-term economic, environmental and social impacts, recognizing that there can be synergies but also tradeoffs among the broad policy aims. As we hope to show in this paper, an examination of “green growth” policies in the transport sector provides an interesting case in point. Reducing emissions comes at a cost to consumers and taxpayers and if fuel tax revenues decline strongly it may be necessary to review the way the transport sector is taxed and contributes to aggregate tax revenue.