Improving air quality in California's San Joaquin Valley: The role of vehicle heterogeneity in optimal emissions abatement

We exploit cross-sectional repair cost and emissions data to estimate an abatement cost schedule for vehicles participating in a program in California's San Joaquin Valley to reduce tailpipe emissions. We find that 1995 and older model year vehicles have a lower marginal abatement cost than newer vehicles across all emissions levels. Since older vehicles are also significantly more polluting, an optimal allocation of emissions-related repair funds should target these vehicles. Total emissions reductions could be improved by an estimated 20% if the program has to shift from the actual flat $500 voucher to the first-best vehicle-specific voucher scheme. A two-tier voucher based on vehicle model year would yield a 15% decrease in emissions over the flat voucher, achieving three fourths of the remaining potential abatement. We also use our estimated abatement cost schedule to provide a measure of the foregone emissions reductions for this fleet due to the current structure of the California Smog Check program. Optimally redistributing the total expenditure required to bring each vehicle to California Smog Check standards could further reduce emissions by an estimated 19–31%.