Long-term fuel demand: Not only a matter of fuel price

This paper analyzes the non-energy determinants of transport-related fuel consumption and in particular investigates the role of housing price trajectories in driving long-run demand for motor fuel. To this aim it develops a dynamic modeling framework and takes the next step of testing it for cointegration. French data spanning fifty years up to 2009 are employed. It is found that when facing an increase of dwellings' real price, fuel demand remains stable in the short term whereas it increases significantly in the long term. Our results reflect the role of spatial organization in the formation of energy demand through the trade-off between housing prices and commuting costs. The modeling framework is then extended to assess the potential interest of combining housing policies aiming to drive down housing prices with carbon taxes so as to achieve a wide range of fuel demand reduction targets. It is shown that the relative contribution of housing policies increases with the degree of ambition of fuel consumption reduction targets. -- Highlights: •We estimate two models of motor fuel demand, one without and one with housing price. •The model with housing price is more robust than the model with fuel price only. •The housing price variable has a significant positive effect on fuel demand. •Impact mechanism occurs through household location and spatial organization change. •Combining spatial policy lowering housing price to carbon tax enhances fuel savings