Welfare Implications of Automobile Feebates: A Simulation Analysis

Abstract:     
Vehicle taxation based on CO2 emissions is increasingly being adopted worldwide in order to shift consumer purchases to low-carbon cars, yet little is known about the effectiveness and overall economic impact of these schemes. We focus on feebate schemes, which impose a fee on high-carbon vehicles and give a rebate to purchasers of low-carbon automobiles. We estimate a discrete choice model of demand for automobiles in Germany and simulate the impact of alternative feebate schemes on emissions, consumer welfare, public revenues and firm profits. The analysis shows that a well-designed scheme can lead to emission reductions without reducing overall welfare.

Number of Pages in PDF File: 31

Keywords: CO2 emissions, feebates, environmental taxation, carbon taxation

JEL Classification: Q52, Q58, L92

working papers series