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The economics of low emission zones




This paper provides two micro-economic models that derive the social cost of a low emission zone (LEZ) for light vehicles. We apply the models to a proposed LEZ for light vehicles in Stockholm, which would prohibit diesel cars of Euro 5 or lower and gasoline cars of Euro 4 or lower in the inner city (25 km2 ). The first model is based on how an increase in user cost impacts traffic volumes in the inner city. This rather conventional user cost calculation of drivers’ loss requires however some strong assumptions. The second model shows that drivers’ losses can be calculated based on price changes observed on the used car market. Our empirical results indicate that the second model yields a twice as large welfare loss as the first. The forecasted benefits of the LEZ consist primarily of air quality improvements leading to health benefits. The empirical results must be interpreted with caution, but we find that the social benefit of air quality improvements is less than a tenth of the social cost.

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  • Börjesson, Maria & Bastian, Anne & Eliasson, Jonas, 2020. "The economics of low emission zones," Working Papers 2020:7, Swedish National Road & Transport Research Institute (VTI), revised 09 Sep 2021.
  • Handle: RePEc:hhs:vtiwps:2020_007

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    References listed on IDEAS

    1. Eliasson, Jonas, 2008. "Lessons from the Stockholm congestion charging trial," Transport Policy, Elsevier, vol. 15(6), pages 395-404, November.
    2. Hendrik Wolff, 2014. "Keep Your Clunker in the Suburb: Low‐emission Zones and Adoption of Green Vehicles," Economic Journal, Royal Economic Society, vol. 124(578), pages 481-512, August.
    3. Wolff, Hendrik, 2014. "Keep Your Clunker in the Suburb: Low Emission Zones and Adoption of Green Vehicles," IZA Discussion Papers 8180, Institute of Labor Economics (IZA).
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    Cited by:

    1. Euchi, Jalel & Kallel, Ahmed, 2021. "Internalization of external congestion and CO2emissions costs related to road transport: The case of Tunisia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 142(C).

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    More about this item


    Dieselgate; Low emission zones; Environmental zones; Cost-benefit analysis; Car market;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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