• Environmental and Resource Economics Review
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• v.32 no.1
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• pp.27-46
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• 2023

This paper investigates how interfuel substitution affects carbon dioxide (CO₂) emissions with a focus on the use of biodiesel blended fuels. The results show that the Divisia elasticity of diesel demand is the greatest because the transportation sector relies heavily on diesel. Also, while the own-price elasticity of each fuel demand is negative, the results reveal that diesel demand is more inelastic than the demand for gasoline and LPG. Moreover, gasoline is a substitute for diesel and electricity, and diesel is a substitute for LPG and a complement for electricity. Regarding the effects on carbon dioxide emissions, this paper computes the potential CO₂ emissions associated with interfuel substitution using the coefficients of CO₂ emissions. The results show that using biodiesel blended fuels contributes to reducing CO₂ emissions, but it appears that the price-induced interfuel substitution is a main factor affecting CO₂ emissions.