Working Paper: CEPR ID: DP13756
Authors: Mathias Reynaert
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: Environmental Regulation; Compliance; Carbon Emissions; Automobiles; Fuel Economy
JEL Codes: Q5; L5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EU emission standard (Q58) | emissions ratings (Q58) |
| technology adoption (O33) | emissions ratings (Q58) |
| gaming (C70) | emissions ratings (Q58) |
| EU emission standard (Q58) | welfare impact (D69) |
| missed emission target (E61) | welfare impact (D69) |
| political environment (P28) | regulatory design (L51) |
| regulatory design (L51) | abatement strategies (Q52) |