Does Free Public Transport Reduce Carbon Emissions? Causal Evidence from Luxembourg

In March 2020, Luxembourg became the first country in the world to offer free public transport across all modes of transport. We leverage this unique quasi-experimental setting to evaluate whether Luxembourg’s free public transport policy has induced a shift
from private motorized transport to free public transport. To assess this shift we measure the reduction in carbon emissions from road transport as an indicator of reduced dependence on private motorized vehicles. We use spatial panel data from the European Emission Database on Global Atmospheric Research and utilize the recently proposed
Synthetic Difference-in-Differences method that combines the advantages of the canonical Difference-in-Difference and Synthetic Control approaches. The study estimates a 6.5% reduction in road transport emissions as a result of the policy, indicating a significant
modal shift from private vehicles to public transport. We carefully consider Luxembourg’s distinctive characteristics and account for the concurrent COVID-19 pandemic to address potential challenges associated with identification and control measures. In particular, we control for confounding factors such as the COVID-related restrictions,
the carbon taxation policies, and changes in working-from-home. Event study analyses and robustness checks indicate the overall reliability of our results.