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

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  • Shapiro, Joseph S.

Abstract

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. 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

  • Shapiro, Joseph S., 2022. "Regulating Untaxable Externalities: Are Vehicle Air Pollution Standards Effective and Efficient?," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt36p5q6xv, Department of Agricultural & Resource Economics, UC Berkeley.
  • Handle: RePEc:cdl:agrebk:qt36p5q6xv
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    References listed on IDEAS

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    1. 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.
    2. 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.
    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. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    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:

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    More about this item

    Keywords

    Social and Behavioral Sciences;

    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
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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