Tax differentiation has been used mainly in Europe to reduce transport-related emissions by: (a)
speeding up the shift from leaded to unleaded gasoline and (b) encouraging clean car sales. As with
other charge forms, tax differentials have an incentive effect only to the extent that they are
sufficiently large to alter behavior. In Europe, leaded and lead-free gasoline differentials ranged
between ECU 0.17 per liter in the Netherlands to ECU 0.47 per liter in Finland. Evidence from
Germany shows that a tax differential of ECU 0.034 per liter has resulted in an increase of the market
share of leaded gasoline from 11% in 1986 to 28% in 1987. Subsequent reduction of the tax
differential to ECU 0.029 in 1987 and ECU 0.024 in 1988 reduces its effectiveness as an incentive. It
must be noted, however, that European countries have used tax differentiation as a transitional policy
to speed up the implementation of direct regulations of air pollution from vehicles. In terms of
transport-related emissions, the general level of gasoline taxes (and hence the general level of
gasoline prices) is as important, if not more, as gas tax differentials. For example, the U.S. has
traditionally maintained low gas taxes and domestic oil prices below world price levels while Europe
and Japan have practised the reverse. This has resulted in significant differences in energy efficiency