Economic Analysis of a Japanese Air Pollution Regulation: An Optimal Retirement Problem under Vehicle Type Regulation in the NOx-Particulate Matter Law

Abstract

This paper empirically examines the vehicle type regulation that was introduced under the Automobile Nitrogen Oxides-Particulate Matter Law to mitigate air pollution problems in Japanese metropolitan areas. The vehicle type regulation effectively sets various timings of vehicle retirement by the first registration year and by type. However, there was no consideration of cost or efficiency in choosing the timing of retirement. We set and solve an optimal problem to maximize the social net benefit under the current framework of the vehicle type regulation. The analysis finds that the net benefit can increase by about 104 percent if the optimal retirement timing is chosen. Further, we confirm that even a simple alteration of retirement timing can increase the social net benefit by 13 percent. Thus, we confirm the importance of an ex-ante quantitative policy evaluation, a regulatory impact analysis, from the viewpoint of efficiency.

Keywords: air pollution, regulatory impact analysis, NOx-PM law, cost-benefit analysis, optimal retirement model

JEL Classification: Q52, Q53, Q58