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Abatement strategies and the cost of environmental regulation: Emission standards on the European car market

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  • REYNAERT, Mathias

Abstract

Emission standards are one of the major policy tools to reduce greenhouse gas emissions from transportation. The welfare effects from this type of regulation depend on how ?firms choose to abate emissions: by changing relative prices, by downsizing their fleet or by adopting technology. This paper studies the response of firms to a new emission standard in the European car market using panel data covering 1998-2011. The data show that firms choose to comply with the regulation by adopting new technology. To evaluate the welfare effects of the regulation I estimate a structural model using data from before the policy announcement and explicitly test the ability of the model to explain the observed responses. I find that, because the abatement is done by technology adoption, consumer welfare increases and overall welfare effects depend on market failures in the technology market. The design of the regulation matters to induce technology adoption.

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  • REYNAERT, Mathias, 2014. "Abatement strategies and the cost of environmental regulation: Emission standards on the European car market," Working Papers 2014025, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:2014025
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    More about this item

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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