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

57 Pages Posted: 30 May 2019 Last revised: 10 Jun 2019

See all articles by Mathias Reynaert

Mathias Reynaert

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: May 2019

Abstract

Emission standards are a major policy tool to reduce greenhouse gas emissions from transportation. The welfare effects from this type of regulation depend on how firms choose to abate emissions, i.e., by sales-mixing (changing prices), by downsizing (releasing smaller cars), by technology adoption or by gaming emission tests. Using panel data covering 1998-2011, I find that the introduction of a EU-wide emission standard coincides with a 14% drop in emission ratings. I find that this drop is fully explained by technology adoption and gaming and not by sales mixing or downsizing. I estimate a structural model to find that the regulation missed its emission target and was not welfare improving. Abatement with sales mixing would have reduced emissions, but at high costs. The political environment in the EU shaped the design and weak enforcement of the regulation and explains the choices for abatement by technology adoption and gaming.

Keywords: automobiles, Carbon Emissions, compliance, Environmental Regulation, fuel economy

JEL Classification: L5, Q5

Suggested Citation

Reynaert, Mathias, Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market (May 2019). CEPR Discussion Paper No. DP13756. Available at SSRN: https://ssrn.com/abstract=3395194

Mathias Reynaert (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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