Policy Instruments to Reduce Carbon Emissions From Road Transport

Abstract

This paper surveys policy instruments aiming at reducing carbon emissions from road transport. We present the basic economic framework used to evaluate environmental policy instruments and discuss the challenges and limitations it faces, which are important enough to justify departures from the first-best instrument (Pigouvian tax). We then discuss a number of policy instruments, including fuel and mileage taxes, standards, different forms of vehicle taxes, feebates, scrappage and information programs, as well as congestion pricing, driving restrictions, and public transport policies. We aim to strike a balance between real-life applications and economic intuition, emphasizing pros and cons of policy instruments as well as the margins they affect, all to provide the reader with a well-rounded view of the topic. We conclude by discussing how the impending changes in the transport sector, such as the diffusion of new technologies and business models, are expected to call for new solutions from policy-makers.