How effective are policies to reduce gasoline consumption? Evaluating a set of measures in Spain

- We evaluate a set of measures aimed at reducing gasoline consumption in Spain.
- A gasoline consumption equation is estimated with provincial 2008-2011 data.
- Limiting driving speeds to 110 km/h rduces consumption between 2% and 3%.
- Increasing the biofuel content by 1% raises total fuel consumed by 0.3% to 0.7%.
- Cross elasticities with respect to public transport fares are low but significant.

Using a panel of 48 provinces for four years we empirically analyze a series of temporary and permanent policies aimed at curbing fuel consumption implemented in Spain between March and June 2011. The first policy was a reduction in the speed limit in highways. The second policy was an increase in the biofuel content of fuels used in the transport sector. The third measure was a decrease of 5% in commuting and regional train fares that resulted in two major metropolitan areas reducing their overall fare for public transit. The results indicate that the speed limit reduction in highways lowered gasoline consumption by 2% to 3%, while an increase in the biofuel content of gasoline increased this consumption. This last result is consistent with experimental evidence that indicates that mileage per liter falls with an increase in the biofuel content in gasolines. As for the reduction in transit fares, we do not find a significant effect for this policy. However, in specifications including the urban transit fare for the major cities in each province the estimated cross-price elasticity of the demand for gasoline - used as a proxy for car use - with respect to the price of transit is within the range reported in the literature. This is important since one of the main efficiency justifications for subsidizing public transit rests on the positive value of this parameter and most of the estimates reported in the literature are quite dated.