Cost savings of using a marketable permit system for regulating light-duty vehicle emissions

In the USA, each individual vehicle is required to meet uniform per-mile emission standards. The uniform standard system does not allow vehicle manufacturers flexibility in achieving overall emission reduction goals for motor vehicles. The system provides manufacturers with little or no incentive to control vehicle emissions beyond what is required. In this paper, an incentive-based marketable permit system is proposed to replace the uniform standard system. Under the marketable permit system, vehicle manufacturers are required to meet corporate average emission standards; they are allowed to buy or sell vehicle emission reduction credits among themselves to meet corporate average standards; and they are allowed to bank vehicle emission reduction credits that are accumulated in earlier years and to use the credits for meeting average standards in later years. It is estimated in this study that relative to the current uniform standard system, the marketable permit system can reduce vehicle emission control costs by $150 to $400 million per year in California, or 13-30% of the costs currently spent on vehicle emission control.