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Regulating Untaxable Externalities: Are Vehicle Air Pollution Standards Effective and Efficient?

Author

Listed:
  • Mark R. Jacobsen
  • James M. Sallee
  • Joseph S. Shapiro
  • Arthur A. van Benthem
Abstract
The world has 1.4 billion passenger vehicles. How should governments regulate their air pollution emissions? A Pigouvian tax is technologically infeasible. Most countries instead rely on exhaust standards that limit air pollution emissions per mile for new vehicles. We assess the effectiveness and efficiency of these standards, which are the centerpiece of US Clean Air Act regulation of transportation, and counterfactual policies. We show that the air pollution emissions per mile of new US vehicles has fallen spectacularly, by over 99 percent, since standards began in 1967. Several research designs with a half century of data suggest that exhaust standards have caused most of this decline. Yet exhaust standards are not cost-effective in part because they fail to encourage scrap of older vehicles, which account for the majority of emissions. To study counterfactual policies, we develop an analytical and a quantitative model of the vehicle fleet. Analysis of these models suggests that tighter exhaust standards increase social welfare and that increasing registration fees on dirty vehicles yields even larger gains by accelerating scrap, though both reforms have complex effects on inequality.

Suggested Citation

  • Mark R. Jacobsen & James M. Sallee & Joseph S. Shapiro & Arthur A. van Benthem, 2022. "Regulating Untaxable Externalities: Are Vehicle Air Pollution Standards Effective and Efficient?," NBER Working Papers 30702, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30702
    Note: DAE EEE IO LE PE
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    References listed on IDEAS

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    1. Eva Lyubich & Joseph Shapiro & Reed Walker, 2018. "Regulating Mismeasured Pollution: Implications of Firm Heterogeneity for Environmental Policy," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 136-142, May.
    2. Peter Tschofen & Inês L. Azevedo & Nicholas Z. Muller, 2019. "Fine particulate matter damages and value added in the US economy," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 116(40), pages 19857-19862, October.
    3. Joseph S. Shapiro & Reed Walker, 2018. "Why Is Pollution from US Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade," American Economic Review, American Economic Association, vol. 108(12), pages 3814-3854, December.
    4. Mark R. Jacobsen, 2013. "Evaluating US Fuel Economy Standards in a Model with Producer and Household Heterogeneity," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 148-187, May.
    5. Christopher R. Knittel & Ryan Sandler, 2018. "The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 211-242, November.
    6. Austin, David & Dinan, Terry, 2005. "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 562-582, November.
    7. Mark R. Jacobsen & Arthur A. van Benthem, 2015. "Vehicle Scrappage and Gasoline Policy," American Economic Review, American Economic Association, vol. 105(3), pages 1312-1338, March.
    8. Bovenberg, A. Lans & Goulder, Lawrence H. & Jacobsen, Mark R., 2008. "Costs of alternative environmental policy instruments in the presence of industry compensation requirements," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1236-1253, June.
    9. Eva Lyubich & Joseph S. Shapiro & Reed Walker, 2018. "Regulating Mismeasured Pollution: Implications of Firm Heterogeneity for Environmental Policy," Working Papers 18-03, Center for Economic Studies, U.S. Census Bureau.
    10. Christopher R. Knittel, 2011. "Automobiles on Steroids: Product Attribute Trade-Offs and Technological Progress in the Automobile Sector," American Economic Review, American Economic Association, vol. 101(7), pages 3368-3399, December.
    11. Eva Lyubich & Joseph Shapiro & Reed Walker, 2018. "Regulating Mismeasured Pollution: Implications of Firm Heterogeneity for Environmental Policy," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 136-142, May.
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    Cited by:

    1. Nicola Borri & Yukun Liu & Aleh Tsyvinski & Xi Wu, 2024. "Inefficiencies of Carbon Trading Markets," Papers 2408.06497, arXiv.org, revised Aug 2024.
    2. Molitor, David & White, Corey, 2024. "Do cities mitigate or exacerbate environmental damages to health?," Regional Science and Urban Economics, Elsevier, vol. 107(C).
    3. Fardella, Carlos & Barahona, Nano & Montero, Juan-Pablo & Sepúlveda, Felipe, 2023. "On the geography of vintage-specific restrictions," Resource and Energy Economics, Elsevier, vol. 75(C).
    4. Li, Shanjun & Wang, Binglin & Zhou, Hui, 2024. "Decarbonizing passenger transportation in developing countries: Lessons and perspectives1," Regional Science and Urban Economics, Elsevier, vol. 107(C).
    5. Mark Colas & Emmett Saulnier, 2023. "Optimal Subsidies for Residential Solar," CESifo Working Paper Series 10446, CESifo.
    6. Xia, Fan & Cheng, Ximeng & Lei, Zhen & Xu, Jintao & Liu, Yu & Zhang, Yingxin & Zhang, Qinghong, 2023. "Heterogeneous impacts of local traffic congestion on local air pollution within a city: Utilizing taxi trajectory data," Journal of Environmental Economics and Management, Elsevier, vol. 122(C).

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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