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Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market

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  • Mathias Reynaert

Abstract

Emission standards are one of the major policy tools to reduce greenhouse gas emissions from transportation. The welfare e¤ects from this type of regulation depend on how  firms choose to abate emissions: by changing relative prices, by downsizing their flÂeet or by adopting technology. This paper studies the response of fi rms to a new emission standard in the European car market using panel data covering 1998-2011. The data show that  firms choose to comply with the regulation by adopting new technology. To evaluate the welfare effects of the regulation I estimate a structural model using data from before the policy announcement and explicitly test the ability of the model to explain the observed responses. I  find that, because the abatement is done by technology adoption, consumer welfare increases and overall welfare effects depend on market failures in the technology market. The design of the regulation matters to induce technology adoption.

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  • Mathias Reynaert, 2014. "Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market," 2014 Papers pre327, Job Market Papers.
    • Handle: RePEc:jmp:jm2014:pre327
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    More about this item

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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