Understanding how petrol consumption responds to price changes and who bears the burden when prices rise is critical to both designing relief measures in times of global oil market volatility as well as setting petrol tax rates in normal times.

Using aggregated, consented and de-identified bank transaction data, this research note provides new evidence on how petrol consumption responds to price changes and how it varies across households.

For emissions reduction policy, the results suggest taxes targeting the externalities of petrol use (e.g. fuel excise, carbon pricing) are more effective than previously thought, since a given price rise drives more behavioural change. Further, they strengthen the case for crisis support since price shocks hit low-income earners hardest. But they also show that an excise cut is poorly targeted and costly given consumers respond more to prices than thought. 

Key findings

• Consumers are much more sensitive to price changes than previously thought. 
• Lower-income consumers are more responsive to price movements.
• Petrol price rises remain regressive because lower-income households spend a larger share of their income on fuel.
• Demand is less elastic in rural and car-dependent areas where alternatives to driving are more limited.