Tiered gasoline pricing: A personal carbon trading perspective

Abstract

This paper proffers a tiered gasoline pricing method from a personal carbon trading perspective. An optimization model of personal carbon trading is proposed, and then, an equilibrium carbon price is derived according to the market clearing condition. Based on the derived equilibrium carbon price, this paper proposes a calculation method of tiered gasoline pricing. Then, sensitivity analyses and consumers' surplus analyses are conducted. It can be shown that a rise in gasoline price or a more generous allowance allocation would incur a decrease in the equilibrium carbon price, making the first tiered price higher, but the second tiered price lower. It is further verified that the proposed tiered pricing method is progressive because it would relieve the pressure of the low-income groups who consume less gasoline while imposing a greater burden on the high-income groups who consume more gasoline. Based on these results, implications, limitations and suggestions for future studies are provided.