Motivating green transition: Analyzing fuel demands in Turkiye amidst the climate crisis and economic impact

Abstract

Decarbonizing the transportation sector is critical for sustainable development, particularly in rapidly urbanizing countries like Turkiye. This study analyzes fuel demand elasticities for diesel, gasoline, and LPG across 12 NUTS-1 regions of Turkiye in 2022, using a panel random effects SUR approach. The model accounts for regional variation and fuel interactions, producing robust estimates that uncover significant spatial and temporal differences in consumption patterns. Uniquely, diesel demand displays a significantly positive price elasticity, challenging the conventional assumption of inelasticity. Gasoline demand is moderately price-sensitive, while LPG appears relatively unresponsive. Strong cross-price elasticities—especially between diesel and gasoline—point to substitution effects that can inform more adaptive policy frameworks. Seasonal fluctuations and Istanbul’s outsized impact also shape national trends. These findings underscore the need for differentiated region- and fuel-specific strategies. While higher gasoline taxes may effectively reduce demand, lowering diesel and LPG use will require complementary measures such as infrastructure upgrades, behavioral incentives, and accelerated adoption of alternative fuels. The study advocates for regionally adjusted carbon pricing, removal of implicit subsidies, and targeted support for electric and hybrid vehicles. Aligning fiscal tools with actual demand behavior can enhance both the efficiency and equity of the transition to a low-carbon transportation system.