Abatement cost functions for incentive-based policies in the automobile market

This paper compares the outcomes of policies that target vehicle holdings with those that target vehicle usage using data from the US Consumer Expenditure Survey. Results show that a higher price of gasoline shifts vehicle holdings towards more fuel efficient vehicles and reduces the annual demand for miles, whereas imposing a fee on vehicles or a feebate program only shifts vehicle holdings towards more fuel efficient vehicles and has little to no impact on the demand for miles. While it is relatively expensive to reduce CO2 emission through incentive-based policies, achieving any abatement level is more expensive through imposing fees on vehicles than gasoline taxes. In addition, the maximum amount of abatement attainable by a feebate program is relatively small and the same amount could be achieved by imposing a $0.73 gasoline tax per gallon.

► The abatement cost functions are estimated for a host of incentive-based policies. ► Reducing CO2 emission through these policies is relatively expensive. ► The cost of abating the first ton of CO2 under a gasoline tax is more than $667. ► Abatement is more expensive through imposing fees on vehicles than gasoline taxes. ► The maximum level of abatement attainable by a feebate program is relatively small.