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

About this event

What is a feasible and efficient policy to regulate air pollution from vehicles? A Pigouvian tax is technologically infeasible. Most countries instead rely on exhaust standards that limit air pollution emissions per mile for new vehicles. These standards differ from fuel economy policies. We assess the effectiveness and efficiency of these standards and counterfactual policies. We show that the emissions rate of new US vehicles has fallen 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 give no incentive to scrap old vehicles, which account for a majority of emissions. To study counterfactual policies, we develop analytical and quantitative models of the new and used vehicle fleets. Making ownership fees increase with the mean emissions of a vehicle type would decrease emissions and increase welfare. By contrast, current actual registration and vehicle property taxes (perversely) decrease with a vehicle's emissions.