An economic approach to the solution of the CO2 problem in the automobile industry: CO2 emissions trading in a multi-standard model

Car manufacturers have been called upon to limit the emissions of new cars sold in EU to 130g CO2 per kilometre, on average, by 2012. The technology for this reduction is available. What is missing is the regulatory framework for achieving this goal. Ferdinand Dudenhöffer, Center of Automotive Research (CAR) at Gelsenkirchen University of Applied Science, has developed a proposal on how the CO2 emissions trade would work best under a multi-standard model. In his opinion the simplest and best way to achieve the goal of the EU Commission is a European emissions trade. In a simple model Dudenhöffer presented his CO2 trade system in a previous issue of ifo Schnelldienst (5/2007). The central premise of his emissions trade model is that every car manufacturer receives free of charge initial emission rights of 130g per vehicle. Every car manufacturer may then only sell vehicles in the EU if it has the corresponding CO2 emission rights. If, for example, Porsche wants to sell a Cayenne turbo with emissions of 350g CO2/km, it must purchase rights from a car like a Smart. In this article Dudenhöffer expands on his simple, one-standard CO2 emissions trading model to multi-standard model that differentiates CO2 output according to vehicle classes.