Study on Fuel Cost Impact in Transportation Sector Receives 4M SEK Grant

Jul. 03, 2024

Sweden's fuel prices, particularly for diesel, have surged due to carbon taxes and biofuel blending requirements, making them the highest in the EU since 2017. A new study by Swedish House of Finance researchers seeking to understand how these costs affect the transportation sector, receives funding.

Swedish House of Finance researchers Christian Thomann (KTH University), Per Strömberg (Stockholm School of Economics), and Gustav Martinsson (Stockholm University) received a 3.99 million SEK grant from the Swedish Transport Administration (Trafikverket) to study how increased fuel costs impact efficiency and industry structure in Sweden's transportation sector.

Higher fuel costs should push firms to reduce emissions by enhancing fuel efficiency or adopting cleaner technologies. However, these costs can also reduce competitiveness and output, potentially hindering firms' ability to invest in low-emission technologies. Meanwhile, some research suggests that long-term technical advancements could offset the short-term competitive drawbacks.

“Understanding these trade-offs are thus of first-order importance for designing optimal transportation policies,” the authors say.

“In practice, this means analyzing how policy is affecting the truck level response, as well as the firms owning the trucks and ultimately how the sector composition responds.”

The research project will analyze how policies influence individual trucks, their owning firms, and the sector as a whole. Using detailed microlevel data from 2007 to 2022, the researchers will trace how policy-induced fuel cost increases affect the road freight transportation sector. They will use panel regressions to examine how diesel costs influence vehicle kilometers driven, carbon emissions, and various efficiency and productivity measures.

Thomann, Strömberg, and Martinsson’s work regularly look into optimal ways policymakers can help reduce emissions. They recently published a study on the impact of carbon pricing on emissions, analyzing data from 4,000 firms across 23 industries, and found that without it, emissions in Sweden would have been 30% higher.