World Energy Outlook 2006

crude oil price elasticity
of fuel demand
Figure 11.11: Crude Oil Price Elasticities of Road Transport Oil Demand
versus the Share of Tax in the Pump Price
–0.1
–0.2
–0.3
–0.4
–0.5
share of tax in fuel pump price
10%
0
20% 30% 40% 50% 60% 70% 80%
Short-term
Short-term trend
Note: Estimates are for the world’s 20 largest oil-consuming countries.
Source: IEA analysis.
Long-term
Long-term trend
The price elasticity of demand for road-transport fuel based on final prices
(including taxes) is significantly higher and more homogeneous, as the impact
of differences in tax and subsidy policies is stripped out. It is, nonetheless, still
somewhat lower than income elasticity, both in the short and in the long term.
We estimate that a permanent doubling of the final price would cut demand
by 15% in the short term and 44% in the long term in the world’s 20 largest
oil-consuming countries (weighted average price elasticities of –0.15 and
–0.44). These estimates are somewhat lower than those produced by other
studies in recent years. A study by Goodwin et al. (2004), for example,
estimates elasticities at –0.25 in the short term and –0.6 in the long term, based
on a survey of 69 studies of demand in various countries published since 1990.
Their study found that the impact of a change in price on fuel demand resulted
mostly from a change in the number of vehicles on the road and the number
of kilometres driven per vehicle. The amount of fuel used per kilometre by each
individual vehicle is only marginally affected by a change in the pump price. A
parallel survey by Graham and Glaister (2004) yielded average fuel-price
elasticities of road-transport demand of –0.25 in the short term and –0.77 in
the long term. Median estimates were lower, at –0.21 and –0.55.
288 World Energy Outlook 2006 - FOCUS ON KEY TOPICS
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