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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 a major policy tool to reduce greenhouse gas emissions from transportation. The welfare effects from this type of regulation depend on how firms choose to abate emissions, i.e., by sales-mixing (changing prices), by downsizing (releasing smaller cars), by technology adoption or by gaming emission tests. Using panel data covering 1998-2011, I find that the introduction of a EU-wide emission standard coincides with a 14% drop in emission ratings. I find that this drop is fully explained by technology adoption and gaming and not by sales mixing or downsizing. I estimate a structural model to find that the regulation missed its emission target and was not welfare improving. Abatement with sales mixing would have reduced emissions, but at high costs. The political environment in the EU shaped the design and weak enforcement of the regulation and explains the choices for abatement by technology adoption and gaming.

Suggested Citation

  • Reynaert, Mathias, 2019. "Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market," CEPR Discussion Papers 13756, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13756
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    Cited by:

    1. Durrmeyer, Isis & Samano, Mario, 2016. "To Rebate or Not to Rebate: Fuel Economy Standards vs. Feebates?," TSE Working Papers 16-732, Toulouse School of Economics (TSE), revised May 2017.
    2. Antonio M. Bento & Mark R. Jacobsen & Christopher R. Knittel & Arthur A. van Benthem, 2020. "Estimating the Costs and Benefits of Fuel-Economy Standards," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 1(1), pages 129-157.
    3. Nano Barahona & Francisco A Gallego & Juan-Pablo Montero, 2020. "Vintage-Specific Driving Restrictions," Review of Economic Studies, Oxford University Press, vol. 87(4), pages 1646-1682.
    4. Mathias Reynaert & James M. Sallee, 2021. "Who Benefits When Firms Game Corrective Policies?," American Economic Journal: Economic Policy, American Economic Association, vol. 13(1), pages 372-412, February.
    5. Doremus, Jacqueline & Helfand, Gloria & Liu, Changzheng & Donahue, Marie & Kahan, Ari & Shelby, Michael, 2019. "Simpler is better: Predicting consumer vehicle purchases in the short run," Energy Policy, Elsevier, vol. 129(C), pages 1404-1415.
    6. Anna Matas & José-Luis Raymond & Andrés Domínguez, 2016. "Changes in fuel economy: An analysis of the Spanish car market," Working Papers 2016/15, Institut d'Economia de Barcelona (IEB).
    7. Réquillart, Vincent & Soler, Louis-Georges & Zang, Yu, 2016. "Quality standards versus nutritional taxes: Health and welfare impacts with strategic firms," Journal of Health Economics, Elsevier, vol. 50(C), pages 268-285.
    8. Jain, Tarun & Hazra, Jishnu, 2020. "Optimal regulation and sustainable product design under uncertainties," International Journal of Production Economics, Elsevier, vol. 225(C).
    9. Shivam Goyal & Dixit Garg & Sunil Luthra, 2021. "Sustainable production and consumption: analysing barriers and solutions for maintaining green tomorrow by using fuzzy-AHP–fuzzy-TOPSIS hybrid framework," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(11), pages 16934-16980, November.
    10. Yan, Shiyu & Eskeland, Gunnar S., 2018. "Greening the vehicle fleet: Norway's CO2-Differentiated registration tax," Journal of Environmental Economics and Management, Elsevier, vol. 91(C), pages 247-262.
    11. Mathias Reynaert & James M. Sallee, 2016. "Corrective Policy and Goodhart's Law: The Case of Carbon Emissions from Automobiles," NBER Working Papers 22911, National Bureau of Economic Research, Inc.
    12. Christina Littlejohn & Stef Proost, 2019. "What Role for Electric Vehicles in the Decarbonization of the Car Transport Sector in Europe?," CESifo Working Paper Series 7789, CESifo.
    13. Edenhofer, Ottmar & Flachsland, Christian & Kalkuhl, Matthias & Knopf, Brigitte & Pahle, Michael, 2019. "Optionen für eine CO2-Preisreform," Working Papers 04/2019, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    14. Pavan, Giulia, 2017. "Green Car Adoption and the Supply of Alternative Fuels," TSE Working Papers 17-875, Toulouse School of Economics (TSE).
    15. Jenn, Alan & Azevedo, Inês & Michalek, Jeremy Joseph, 2019. "Alternative-Fuel-Vehicle Policy Interactions Increase U.S. Greenhouse Gas Emissions," OSF Preprints n69tp, Center for Open Science.
    16. Soren T. Anderson & James M. Sallee, 2016. "Designing Policies to Make Cars Greener: A Review of the Literature," NBER Working Papers 22242, National Bureau of Economic Research, Inc.
    17. D’Haultfœuille, Xavier & Durrmeyer, Isis & Février, Philippe, 2016. "Disentangling sources of vehicle emissions reduction in France: 2003–2008," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 186-229.
    18. Konstantinos-Marios Tsitsilonis & Gerasimos Theotokatos & Nikolaos Xiros & Malcolm Habens, 2020. "Systematic Investigation of a Large Two-Stroke Engine Crankshaft Dynamics Model," Energies, MDPI, vol. 13(10), pages 1-29, May.

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    More about this item

    Keywords

    automobiles; Carbon Emissions; compliance; Environmental Regulation; fuel economy;
    All these keywords.

    JEL classification:

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

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