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Interpreting tradable credit prices in overlapping vehicle regulations

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  • Leard, Benjamin
  • McConnell, Virginia

Abstract

Prices of tradable credits in environmental regulations reveal information about abatement costs. This information guides regulatory assessments and future changes to the regulations. When regulations overlap, however, simple interpretations of credit prices no longer hold. We derive formulas for interpreting the value of credit prices for three overlapping regulations for passenger vehicles: corporate average fuel economy (CAFE) standards, greenhouse gas (GHG) standards, and zero emissions vehicle (ZEV) programs. Our assessment reveals that the marginal costs of reducing GHGs from conventional gasoline vehicles are virtually equal to the sum of CAFE and GHG credit prices, since each policy regulates emissions/fuel use in nearly the same way. We calculate that marginal costs ranged between $8 and $16 per ton of carbon dioxide in 2017. In contrast, marginal costs of selling one additional ZEV were $6,000 to $11,000 in 2017, which are higher than the ZEV credit price. This difference is because selling an additional ZEV yields compliance cost savings under the CAFE and GHG programs.

Suggested Citation

  • Leard, Benjamin & McConnell, Virginia, 2021. "Interpreting tradable credit prices in overlapping vehicle regulations," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:jeeman:v:109:y:2021:i:c:s0095069621000796
    DOI: 10.1016/j.jeem.2021.102510
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    References listed on IDEAS

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    Cited by:

    1. Lu & Pollitt, M. G. & Wang, K. & Wei, Y-M., 2023. "The Incremental Impact of China's Carbon," Cambridge Working Papers in Economics 2349, Faculty of Economics, University of Cambridge.
    2. Mei Lu & Michael G. Pollitt & Ke Wang & Yi-Ming Wei, 2023. "The incremental impact of China’s carbon trading pilots," Working Papers EPRG2316, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.

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    More about this item

    Keywords

    Credit prices; Overlapping environmental regulations; Transportation policy;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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