European diesel demand faces an uncertain future


Fiscal support for diesel fuel in the EU road sector has come under increasing scrutiny in recent years due to concerns over the impact of nitrogen oxide (NOx) emissions on local air quality.

Events involving Volkswagen and its manipulation of emissions tests for diesel cars have intensified the debate, raising concerns surrounding NOx and the impact on human health. The consumer and political reaction could have an adverse effect on sales of diesel passenger cars in Europe, potentially causing European policy holders to  call time on the encouragement of the structural dieselisation of the passenger fleet.

The key mechanism by which most EU governments support diesel demand is by setting lower retail fuel taxes than those on gasoline per litre. We have examined the impact of removing the retail tax discount on diesel in many national markets and estimate it would incentivise some 15% of EU drivers to switch from using diesel to gasoline.

EU New Registrations by Fuel EU car stock by fuel

Assuming this was reflected in new sales, the number of diesel cars would fall from almost 100 million to 61 million by 2035, while the number of gasoline cars would rise from 135 to almost 167 million.

As a result, there would be a near 16 million tonne decline in diesel demand by 2035 compared to our base case demand outlook, while gasoline demand would be almost 17 million tonnes higher.

However, tax equalisation would only start to have a significant impact on road fuel demand from the latter part of the 2020s. Under our current outlook the European refining industry is likely to be under most pressure over the next five years, so tax equalisation is unlikely to be the saving grace for Europe's less competitive refineries. 

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The end of structural dieselisation in Europe?

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