Gasoline prices, traffic congestion, and carbon emissions

Abstract

This paper explores the effect of gasoline prices on traffic congestion and carbon emissions. The international crude oil price is used as an instrumental variable for the gasoline price in Chinese cities. Empirical results show that a ten percent increase in gasoline prices significantly decreases traffic congestion in rush hours by 0.87%. In addition to reducing vehicle kilometers traveled, higher gasoline prices also decrease carbon emissions by increasing travel speed and fuel efficiency. A ten percent increase in gasoline prices is found to decrease CO₂ emissions by 40.6 million metric tons, accounting for 2.3% of the total CO₂ emissions in the transport sector of China in 2016. This paper's estimates offer guidance for gasoline pricing policies, fuel taxes, traffic congestion, and the Dual-Carbon Target.