The demand for aviation gasoline and the impact of an increased tax on lead emissions

Abstract

A poisonous and environmentally hazardous byproduct of aviation gasoline combustion is lead emissions. A proposed increase in the aviation gasoline tax from 19.4 to 70.1 cents per gallon has generated a heated debate between pilots and the Federal Aviation Administration. Given that general aviation produces approximately 50% (over 1200 tons) of all lead emissions in the US, understanding the sensitivity that aviation gasoline demand has to price changes is essential to better understanding the policy implications and the environmental impact from an increased tax. Few studies have examined aviation fuel elasticities and no known study has estimated aviation gasoline elasticities. This paper fills that gap and estimates the price elasticity of demand to range from −0.043 to −0.185 in the short-run and from −0.132 to −0.303 in the long-run. Consequently, the estimated impact of the proposed tax increase is a reduction of between 10.71 to 21.30 tons of lead in the short-run and between 15.12 to 34.78 tons of lead in the long-run. Finally, tax revenue could be increased by more than 350% to over $196 million (2009 US$) with the proposed aviation gasoline tax increase.