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Which “second-best” climate policies are best? Simulating cost-effective policy mixes for passenger vehicles

Chandan Bhardwaj, Jonn Axsen and David McCollum

Resource and Energy Economics, 2022, vol. 70, issue C

Abstract: In the real-world of political opposition and complex market failures, carbon pricing alone will not achieve deep GHG mitigation targets. Hence, we search for the most cost-effective “second-best” policies. Focusing on the light-duty vehicle sector in the case of Canada, we compare several policies in terms of effectiveness (regarding 2030 GHG goals) and mitigation costs, namely: (i) a carbon tax; (ii) a vehicle emission standard (or VES); (iii) a zero emissions vehicle (ZEV) mandate, and (iv) combinations of all three at various stringencies. In this effort, we apply the AUtomaker-consumer Model (AUM), which endogenously simulates consumer and automaker decisions and technological change. Comparing individual policies, the regulations are about three times more expensive than the carbon tax. Among “second-best” policies, the VES is cheaper than a ZEV mandate at lower stringencies, but at higher stringencies the two are similarly efficient (both incentivize widespread ZEV deployment). In policy mixes, cost-effectiveness is improved by a carbon tax. Specifically, inclusion of a CDN$100–150/tonne tax can achieve targets while being 30–40% less costly than a regulation alone. We suggest that policymakers implement carbon pricing as stringently as politically feasible (for efficiency), complemented by regulations as needed (for efficacy) to meet GHG targets.

Keywords: Climate policy; Cost-effectiveness; ZEV mandate; Policy mixes; Technology adoption model; Transport decarbonization (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.reseneeco.2022.101319

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