| Summary: | Since 1990, Belgium has managed to bring down greenhouse gas emissions in most domains of economic activity. Road transport, as in many other countries, is a notable exception to this pattern: emissions have steadily increased, driven by an ever higher consumption of petrol and diesel. Even though the current overall performance will probably be sufficient to reach the reduction objectives of the Kyoto protocol, transport emissions thus need to be targeted in the future. One possible measure aimed at reducing them, an increase in fuel taxes, is examined in detail in this paper. The success of such a policy depends on the price elasticity of fuel demand, and therefore, the latter is estimated for Belgium and other European countries. The elasticities obtained are relatively small: in Belgium, for instance, a 10% increase in prices would cause consumption to fall by around 1.8% in the short-run and 2.3% in the medium run. Tax increases alone will thus certainly be insufficient for cutting emissions at this time horizon. Nevertheless, as a supporting measure in a more general reduction strategy, they could still yield substantial advantages. This Working Paper relates to the 2011 OECD Economic Review of Belgium (www.oecd.org/eco/surveys/Belgium)
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