Diesel is currently taxed at a lower level than gasoline in Europe; however, since 2011 the EC has been considering reversing that situation by making energy taxes systematically reflect the CO2 performance of the energy product.

As on a volumetric basis, diesel contains more carbon than gasoline, the tax on diesel fuel would increase.

In a paper published in the journal Transportation Research Record: Journal of the Transportation Research Board, a team of researchers in France explore the economic and environmental outcomes of such a change.

…from an environmental viewpoint, because 1 L of diesel fuel contains more carbon than 1 L of gasoline and because diesel-powered cars emit more pollutants such as nitrogen oxides (NOx) and particulates [but less carbon monoxide (CO) and non-methane volatile organic compounds (NMVOCs)], diesel fuel should be more taxed than gasoline. Recent work from the French transport accounts commission confirmed previous results of the French Ministry for Sustainable Development: gasoline is overtaxed, and diesel fuel is undertaxed. However, because diesel-powered cars are more fuel-efficient, some authors argue that dieselization of the passenger car fleet should be increased to decrease CO2 emissions.

From a user’s viewpoint, diesel-powered cars have appealing characteristics: they are more fuel-efficient [about 26%], and their fuel is cheaper (at least in France and many other European countries). However, they also are more expensive, mainly because automakers capture a part of the expected gains. Because diesel- and gasoline- powered cars are almost perfect substitutes for users, a change in the levels of fuel taxation is expected to affect engine type choice by households and businesses, and automakers will respond by changing their pricing strategies to maintain their profits.

In their paper, the authors attempt to provide insight into the issue by using French data to model the demand and the supply sides of the car market. They found that, at the car fleet level for France:

A 60% increase in the diesel fuel tax would bring about a decrease in the dieselization rate at the fleet level from 64% to 45% between 2011 and 2030 and a decrease in overallCO2 emissions of passenger cars by 3.5%.

A scheme including a decreased gasoline tax could bring about an increase in CO2 emissions.