The Effect of the Swiss CO2 Levy on Heating Fuel Demand of Private Real Estate Owners

Abstract

To effectively mitigate climate change, it is crucial to better understand the reaction of fossil-fuel demand to price and tax changes, and more precisely to climate policy instruments such as a carbon levy. The Swiss CO2 levy on heating fuels was introduced in 2008 at CHF 12/tCO2eq, and was increased steadily up to CHF 84/tCO2eq during the period of 2016/2017. This paper investigated the effectiveness of the levy as an instrument to reduce heating fuel demand, and hence carbon emissions, of private real estate owners. The Swiss Household Budget Survey 2006–2017 constituted the main data source. Before–after and pseudo-panel regressions were used to capture the CO2 levy’s effects, and a large set of household characteristics, as well as climatic conditions, were controlled for. No significant effects in the first two policy periods of 2008–2013 were found. Over the period of 2014–2017, a significant reduction in house owners’ heating fuel demand of up to 14% with respect to 2006–2007 was detected. The effect was less significant and smaller in magnitude for flat owners. A significant CO2 levy semielasticity of heating fuel demand of −1.3% for house owners was further estimated. Hence, the results confirmed the effectiveness of the CO2 levy under the conditions that the levy was sufficiently high, as during the years of 2014–2017, and households directly paid the levy and were responsible for decisions concerning heating and insulation, as was the case for house owners.