Key on Strategies to Reduce Carbon Emissions - Literature review Example

?Key Literature on Strategies to Reduce Carbon Emissions This work seeks to review some of the fairly recent strategies to reduce carbon emissions from vehicles. Are there alternatives to scrappage to reduce carbon emissions? What does the literature indicate on the effectiveness of scrappage and other strategies in reducing the carbon emissions from vehicles? Do the strategies have other effects such as boosting demand? These questions are relevant towards a better review of the experience of Irish states on the second scrappage scheme that was implemented from 1 January 2010 to 31 June 2011. The policy was introduced by then Minister for Finance, Brian Lenihan. The Irish scrappage policy was meant to reduce the level of carbon emissions in Ireland as well as boost domestic demand. Hennessy and Tol (2011) constructed an empirical model (based on history of data) to anticipate the impact of three policies in Ireland to reduce carbon emissions. The first policy is the 2009 reform of vehicle registration and motor tax; the second policy is the electrification of transports; and the third policy is the scrappage scheme. The model sought to characterize the impact of the three policies on the Irish car stock from 2010 to 2025. Based on the empirical model developed by Hennessy and Tol, the first policy or the 2009 reform of vehicle registration and motor tax will lead to a dramatic shift in Irish vehicle stock: the main vehicle stock will be transformed from petrol to diesel cars (Hennessy and Tol 2011, p. 135). According to the model, fuel efficiency will improve with the first policy. However, although carbon emissions will be reduced, the reduction will not be substantial (Hennessy and Tol 2011, p. 135). The reduction in carbon emission through a policy of reform of vehicle registration and motor tax will be such that by 2020, Irish carbon emissions will be only roughly equal to the carbon emissions of 2007 or the carbon emissions of four years ago. On the other hand, using the same empirical model developed by Hennessy and Tol (2005, p. 135), the second policy or electrification of transport of transport will likely “displace small, efficient, and little-driven petrol cars” and will thus lead to a “minimal” carbon emissions (Hennessy and Tol 2005, p. 135). Hennessy and Tol’s model indicated that the third policy or the scrappage scheme will have little effect because it applies only to a tiny fraction of the car stock. While the Hennesy and Tol study employed their model to anticipate or project the possible impact of three policies on carbon emissions, the Rogan et al. (2011) investigated the impact of taxation on private cars proportionate to their carbon emissions based on the results after a year of the tax rate change that was started to be implemented in July 2008. According to Rogan et al. (2011), the taxation proportionate to carbon emission policy that was started to be implemented in July 2008 reduced the emissions from new cars to only 145 g/km as short as one year from the start of the implementation of the policy (Rogan et al. 2011, p. 583). According to Rogan et al., the reduction was brought about not by a decrease in engine size but by through the shift to diesel cars. However, the policy led to a 33% decrease in tax revenue equivalent to €166 million (Rogan et al. 2011, p. 583). Earlier, Giblin and McNabola (2009) attempted to anticipate the possible impact of the 2008 policy that was the subject of the Rogan et al. (2011) analysis. In contrast to the one-year after results of the policy analysis of Rogan et al. (2011), however, Giblin and McNabola anticipated or forecasted the possible impact of the policy using a model. In the Giblin and McNabola model, the carbon emission-differentiated vehicle tax system that was implemented beginning July 2008 was forecasted to result into a 3.6 to 3.8% carbon dioxide emission intensity and a reduction in tax revenue of € 191 million. Licandro and Sampayo (2005) used a mathematical car replacement model to analyze the impact of policies designed to influence car replacement decisions. The mathematical car replacement function involves an aggregate hazard function mimicking the hazard function observed for the Spanish car market. Using calibration techniques, Licandro and Sampayo customized the model for the Plan Prever, a policy or scheme that was introduced in Spain in 1997. The overall finding of Licandro and Sampayo (2005, p. 1) is that although the policy introduced in Spain in 1997 will have high positive effects in the short run, the long run effect will be small for both increased sales and stock average age. Licandro and Sampayo ((2005, p. 21) believed that their model is capable for anticipating the possible effects of replacement subsidies. They noted that threshold vehicle age in a replacement scheme introduce replacement delay for some consumers (p. 21). The model has five assumptions (Licandro and Sampayo 2005, p. 21). First, there is no second hand market. Second, physical depreciation is independent of age. Third, the parameters affecting scrapping are constant except for the change in scrapping value with the subsidy. Fourth, cars have no maintenance costs. Lastly, fifth, the transitory effect is instantaneous. Licandro and Sampayo (2005, p. 21) conceded that their model most likely overestimate the short run effect because their model ignored the second-hand car market and assumed a “time independent physical depreciation”. However, they pointed out that the accuracy of their model can be improved by when information becomes available on transactions as well as on the prices of cars at various ages (Licandro and Sampayo, 2005, p. 21). They also pointed out that another route for improving the accuracy of their model is “take into account the various factors responsible for the transitory effects of the Prever-like schemes and not being instantaneous, as can be adjustment cost either on the demand or supply side of the market” (Licandro and Sampayo 2005, p. 22). Adda and Cooper (2000) constructed a dynamic stochastic discrete choice model of car ownership at the household level and used the model to study the effects of subsidizing the replacement of old cars with new ones in France. They found that the policy of subsidizing the replacement of old cars with new ones supports the automobile sector in the short run but in the long run, there would be low activity resulting from cross-sectional distribution of car ages (Adda and Cooper 2000, p. 778). Further, while the subsidies on replacing cars with new ones can increase government revenues in the short run, the long run effect is that revenues will be lower relative to a baseline if there is no intervention. In summary, the literature we have reviewed suggest that scrappage will be beneficial for at least the short run. The estimated effects of scrappage on carbon emissions are positive but small in the long run (Hennessy and Tol 2005). The effects of scrappage on government revenue is positive for both the car industry and government revenues in the short run but negative in the long run when there is no intervention (Adda and Cooper 2000). Based on the studies that we have reviewed, differentiated taxation on vehicles based on carbon emissions can reduce carbon emissions at least in the short run but will lead to a decrease in government revenues. Electrification of transport will only lead to a “minimal” reduction of carbon emissions. We must point out an important caveat to this review: none of the studies that we have reviewed involved an ex post review of scrappage policy to assess the preliminary results of a scrappage policy. The studies discuss in this review merely used models to evaluate the effectiveness of scrappage policy ex ante. References Adda, J. and Cooper, R., 2000. Balladurette and Juppette: A discrete analysis of scrapping subsidies. Journal of Political Economy, 108 (4), 778-806. Giblin, S. and McNabola, A., 2009. Modelling the impacts of a carbon emission-differentiated vehicle tax system on CO2 emissions intensity from new vehicle purchases in Ireland. Energy Policy, 27, 1404-1411. Hennessy, H. and Tol, R., 2011. The impact of government policy on private car ownership in Ireland. The Economic and Social Review, 42 (2), 135-157. Licandro, O. and Sampayo, A., 2005. The effects of replacement schemes on car sales: The Spanish case. European University Institute Working Paper ECO No. 2005/20. Rogan, F., Dennehy, E., Dally, H., Howley, M., and Gallachoir, B., 2011. Impacts of an emission based private car taxation policy – First year ex-post analysis. Transportation Research, Part A 45, 583-597. Read More