Solving Car Pollution Problems Through Technology Fixes

Recent years have seen a resurgence of interest in using public policy to shift travel behavior, most notably in the U.S. Department of Transportation’s strategic plan that emphasizes “livability” and “environmental sustainability.” US DOT has combined with the U.S. Department of Housing and Urban Development and U.S. Environmental Protectin Agency to encourage policies that direct people into higher density, transit-oriented “urban villages” or cities to reduce the human footprint on the environment.

That’s why a recent academic study published in the Berkeley Electronic Presses Journal of Economic Analysis and Policy is of interest. The authors find that a tax on gasoline, vehicle size, and engine size–“second best” alternatives to a more efficient, direct “pigouvian tax” on pollutants–could achieve 71 percent of the gains in reduced air pollutino. Nearly two-thirds of this improvement is achieved through a tax on gas.

The lesson in my opion: The most of effective policies are those that directly address the identified problem. Attempts to change behavior to achieve goals like environmental improvement are indirect at best, often several times removed from the impact we want to mitigate, and as a result indirect and ineffective.

Here’s the abstract to the academic study and cite:

Tax and Subsidy Combinations for the Control of Car Pollution

Don Fullerton, University of Illinois at Urbana-Champaign
Sarah E. West, Macalester College

A BEJEAP Advances1 article.


Despite technological advances, an individual car’s emissions still cannot be measured reliably enough to impose a Pigovian tax. This paper explores alternative market incentives that could be used instead. We solve for second-best combinations of uniform taxes on gasoline, engine size, and vehicle age. For 1,261 individuals and cars in the 1994 Consumer Expenditure Survey, we record the car’s model, year, and number of cylinders. We then seek a corresponding car in data from the California Air Resources Board that shows the car’s engine size, fuel efficiency, and emissions per mile. We calculate the welfare improvement from a zero-tax scenario to the ideal Pigovian tax, and we find that 71 percent of that gain can be achieved by the second-best combination of taxes on gas, size, and vintage. A gas tax alone attains 62 percent of that gain. These results are robust to variation in the elasticity of substitution among goods. Submitted: November 19, 2009 · Accepted: January 22, 2010 · Published: February 9, 2010

Recommended Citation

Fullerton, Don and West, Sarah E. (2010) “Tax and Subsidy Combinations for the Control of Car Pollution,” The B.E. Journal of Economic Analysis & Policy: Vol. 10 : Iss. 1 (Advances), Article 8.
DOI: 10.2202/1935-1682.2467
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