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Using vehicle taxes to reduce carbon dioxide emissions rates of new passenger vehicles: evidence from France, Germany, and Sweden

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  • Thomas H. Klier
  • Joshua Linn

Abstract

France, Germany, and Sweden have recently linked vehicle taxes to the carbon dioxide (CO2) emissions rates of passenger vehicles. France has introduced a system of CO2-based purchase taxes and subsidies, whereas Germany and Sweden impose annual circulation (i.e., registration) taxes that are linear functions of CO2 emissions rates. This paper (a) compares the effects of vehicle taxes on registrations and average emissions rates across countries and (b) estimates the effect of reducing CO2 emissions rates on manufacturers’ profits. The taxes have had a significant negative short-run effect on new vehicle registrations in all three countries, although the effect is somewhat stronger in France than in Germany and Sweden. We find little evidence that the French tax caused manufacturers to change the emissions rates of individual vehicles, however. The second part of the paper takes advantage of the theoretical equivalence between an emissions rate standard and a CO2-based emissions rate tax. We use the results from the first part to estimate the effect on manufacturers’ profits of reducing emissions rates. Focusing on France, a decrease of 5 grams of CO2 per kilometer (about 3 percent) reduces short-run profits by 10–50 euros per vehicle, depending on the manufacturer. We find considerable heterogeneity across manufactures in these costs.

Suggested Citation

  • Thomas H. Klier & Joshua Linn, 2012. "Using vehicle taxes to reduce carbon dioxide emissions rates of new passenger vehicles: evidence from France, Germany, and Sweden," Working Paper Series WP-2012-09, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-2012-09
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    References listed on IDEAS

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    7. Amy Finkelstein, 2009. "E-ztax: Tax Salience and Tax Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 969-1010.
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    Cited by:

    1. Ding Weina & Marianna Gilli & Massimiliano Mazzanti & Francesco Nicolli, 2016. "Green inventions and greenhouse gas emission dynamics: a close examination of provincial Italian data," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 18(2), pages 247-263, April.
    2. Aileen Lam, 2013. "Projections of future emissions and energy use from passenger cars as a result of policies in the EU with a dynamic model of technological change," 4CMR Working Paper Series 005, University of Cambridge, Department of Land Economy, Cambridge Centre for Climate Change Mitigation Research.
    3. Kok, Robert, 2015. "Six years of CO2-based tax incentives for new passenger cars in The Netherlands: Impacts on purchasing behavior trends and CO2 effectiveness," Transportation Research Part A: Policy and Practice, Elsevier, vol. 77(C), pages 137-153.
    4. Barbieri, Nicolò, 2015. "Investigating the impacts of technological position and European environmental regulation on green automotive patent activity," Ecological Economics, Elsevier, vol. 117(C), pages 140-152.
    5. Malina, Christiane, 2016. "The environmental impact of vehicle circulation tax reform in Germany," CAWM Discussion Papers 86, University of Münster, Center of Applied Economic Research Münster (CAWM).

    More about this item

    Keywords

    Carbon dioxide ; Emissions trading ; Euro;

    JEL classification:

    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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