What is the ‘diesel discount’ and does it matter?

Most goods and services consumed in the world rely on road transport at some point in their supply chain, and personal vehicles are the preferred mode of transport in affluent countries. The benefits of road transport include enhanced personal mobility and greater access to goods and services. However, well over 90% of passenger cars and trucks in the world are powered by gasoline or diesel fuel.1 Reducing greenhouse gas emissions from fossil fuel use in transportation is widely viewed as a cornerstone of any realistic policy to mitigate anthropogenic climate change.

Governments across the world enact policies that affect the price of gasoline and diesel fuel to end users, and in doing so affect the quantities consumed. Excise taxes are commonly levied on the production, sale, or consumption of gasoline and diesel fuel. Governments also provide energy subsidies that lower the price of gasoline or diesel fuel compared to a situation without that action.


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The difference between the taxes that raise prices and the subsidies that lower prices is called the Net Effective Energy Rate (Net EER). It is expressed in dollars per gallon or euros per liter. A study of 106 countries revealed a widespread “diesel discount,” or “diesel differential,” in which diesel fuel generally has a lower Net EER compared to gasoline.2 In short, most government tax policies studied favor the consumption of diesel fuel over gasoline fuel.

Why favor diesel? Many European governments historically sought to reduce the operating costs for diesel-powered trucks that are critical for the movement of goods and services. They also wanted to protect their domestic diesel automakers against gasoline-vehicle imports. Supporters of the favored status for diesel fuel point out that diesel engines are more fuel-efficient than gasoline engines, and diesel fuel contains roughly 10% to 15% more energy than gasoline. This means that diesel vehicles can often go about 20% to 35% farther on a gallon of fuel than their gasoline counterparts.3

Critics of the diesel discount argue that diesel engines produce more pollution in the form of particulate matter (PM), the greenhouse gas carbon dioxide, and smog-forming nitrogen oxides (NOx). There is some merit to these arguments, but the answer is very context-specific. Diesel creates about 15% more carbon dioxide per gallon or liter burned.4 But the greater efficiency of the diesel engines negates much of its higher carbon content. Advances in pollution control and fuel refining–largely driven by government regulations–have significantly lowered NOx and PM emissions from diesel fuel, although they still remain higher than gasoline.

Governments are slow to reduce or eliminate energy taxes for a simple reason: they generate enormous revenue streams. The diesel versus gasoline tax issue is now part of a much larger political discussion: how to accelerate the electrification of transportation as a means to reduce greenhouse gas emissions. The historic arguments for and against each fuel must be weighed against the overriding need to reduce greenhouse gas emissions from the combustion of fossil fuels.

1 IEA Energy Efficiency Indicators, December 2021 Edition, Link

2 OECD (2022), Pricing Greenhouse Gas Emissions: Turning Climate Targets into Climate Action, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/e9778969-en

3 U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Diesel Vehicles, accessed October 11, 2023, Link

4 U.S. Environmental Protection Agency, Tailpipe Greenhouse Gas Emissions from a Typical Passenger Vehicle, accessed October 11, 2023, Link

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