Scandinavian Working Papers in Economics

Working Papers,
Swedish National Road & Transport Research Institute (VTI)

No 2025:4: The distribution of burdens for climate-related increases in fuel costs and the need for compensation

Roger Pyddoke (), Nanna Fukushima () and Emma From
Additional contact information
Roger Pyddoke: Swedish National Road and Transport Research Institute (VTI), Postal: VTI, Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden
Nanna Fukushima: Swedish National Road and Transport Research Institute (VTI), Postal: VTI, Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden
Emma From: Swedish National Road and Transport Research Institute (VTI), Postal: VTI, Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden

Abstract: While opinion polls indicate broad support for climate policy in Europe, support for higher fuel prices is weaker due to concerns about fairness and effectiveness. This paper examines the income and geographic distribution of private car ownership and fuel consumption and evaluates compensation policies associated with higher fuel taxes using Swedish administrative data covering all adults in 2022. We find that, regardless of income or area of residence, most car owners devote only a modest share of disposable income to fuel, a minority accounts for a disproportionately high share of fuel consumption. Electric vehicle adoption is, however, strongly concentrated among high-income individuals, suggesting unequal ability to mitigate the effects of higher fuel taxes through technological transition. We analyse two simple compensation schemes designed to preserve incentives to reduce fossil-fuel dependence while compensating low-income car owners most affected by higher fuel prices. We find that compensation targeted at low-income rural car owners for consumption above that of comparable urban residents generates only limited transfers because differences in median fuel consumption between rural and urban car owners are considerably smaller than often assumed. The fiscal costs of both compensation schemes are small relative to tax revenue.

Keywords: Climate policy; fuel tax; car ownership; fuel consumption; income distribution; spatial distribution; compensation

JEL-codes: D31; H23; Q52; R12; R48

Language: English

28 pages, First version: September 1, 2025. Revised: October 5, 2026. Earlier revisions: October 5, 2026.

Full text files 

VTI%202025%204.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Transportbiblioteket ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:vtiwps:2025_004This page generated on 2026-10-05 08:07:52.