Essays in vehicle emission policies
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The first chapter of this dissertation examines welfare impacts of a combination of subsidies to alternative fuels (AFs) and alternative fuel vehicles (AFVs), and how they compare to gasoline taxes. The particular AF examined here is ethanol that is produced from agricultural products in a small open economy. The model in this paper characterizes a country or state where gasoline is the major source of fuel for automobiles, but that also produces and consumes ethanol as an AF. Gasoline combustion is polluting and its use equals the total amount of emissions produced. Thus, a gasoline tax here is the same as an emissions tax and is the most direct environmental instrument. However, increasing gasoline taxes for pollution purposes is often politically not feasible. Thus, this paper studies how closely subsidies to alternative fuels (AFs) and alternative fuel vehicles (AFVs) emulate abatement behavior from a unit gasoline tax in a simple three sector general equilibrium model, and in the presence of pre-existing labor taxes. The model can also be used to track the effects of each policy on outputs, exports, and fuel use. The analytical results of the model are then calibrated to data from the largest ethanol producing state in the U.S., namely Illinois. The paper finds that subsidies can achieve up to 64 percent of the welfare gains from the gasoline tax, if the uncompensated wage elasticity is low enough or the elasticities of substitution between the transportation goods is high enough. The second chapter estimates behavior of households who jointly make discrete decisions about vehicle ownership and continuous decisions about miles driven. The paper uses seven years of data from 1995-2001 for the 35 states and union territories of India. The estimated parameters will be used to calculate elasticities of each different type of vehicle for percentage changes in petrol price per unit distance travelled and in vehicle taxes. The paper also computes income and price elasticities for petrol consumption. Two types of vehicles predominant in India are cars and two-wheelers such as motorcycles, mopeds, and scooters. The latter type of vehicle is more fuel efficient than the former. However, patterns of vehicle ownership across the country reflect a growing number of cars relative to motorcycles. This paper investigates the impact alternative policies such as taxes on petrol or on cars have on efficient methods of vehicle emission abatement in India. In particular, the chapter estimates the effect of each such policy on vehicle choice and driving behavior, and how they in turn affect emissions. The main results are summarized as follows: First, continuous choice own-price elasticities are higher for 4w relative to 2w, given age, and for older vehicles relative to newer ones, within each category. Second, discrete choice own-price elasticities with respect to capital cost are higher for 2w relative to 4w. Moreover, older vehicles of each type are more sensitive to higher vehicle prices relative to their newer counterparts. Third, income elasticities for discrete vehicle choices are all positive and greater than unity. Thus, higher income encourages purchase of newer vehicles of each type. Moreover, usage of vehicles rises with income, conditional on the particular vehicle choice. Finally, the paper conducts simulations that alter the price per kilometer by adding either an additional gas tax, a distance tax or an emissions tax. Results show that a distance tax reduces vehicle kilometers traveled the most, followed by an emissions tax and lastly by the gas tax. However, local emissions are reduced the most by an emissions tax, followed by a distance tax and then by a gasoline tax. Even though it would be ideal to compare the results obtained in this paper to results generated using a micro-level data set, the estimates presented here are indicative of whether a distance tax or a gasoline tax is more effective for emissions abatement in India. The third chapter of this dissertation evaluates how information asymmetry in private automobile markets affects programs to accelerate vehicle retirement, also known as scrappage programs. We use a dynamic framework where agents have heterogenous preference for car quality. Cars can either be new, or used. While all new cars have the same quality, used cars can be of high- or low-quality. The quality of a car is perfectly correlated with emissions. The goal of a scrappage program is to induce car owners to voluntarily scrap low-quality used cars. One key result is that in the presence of adverse selection a subsidy that maintains an active resale market unambiguously makes all types of consumers better off. However, if this option of implementing the subsidy does not exist, then the only other way to induce effective scrappage in our framework is to shut down the used car market. Welfare implications suggest that it might be better not to do anything rather than have a scrappage program such as the latter.