A Note on the Economic Impact of Higher Gasoline and Electricity Prices in Mexico

Mexico began a process of increasing the prices of gasoline and electricity in December 1995. The objective of the price increases, which are to take place through 1996, is to raise revenue as well as reduce consumption of fossil fuels. From the perspective of reducing carbon emissions, the price increases will have a beneficial effect. For each 1% increase in the price of gasoline, the consumption of gasoline falls by 0.41%. This translates into a corresponding proportionate reduction in carbon emissions from gasoline. Analogously, a 1% rise in the price of electricity yields a 0.33% reduction in electricity consumption, giving a coincident decline in carbon emission from the generation of electricity.