Designing Low Emission Zones: Theory and Evidence

Natalia Fabra, Nano Barahona, Imelda Imelda and Juan Pablo Montero

No 22160, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Low Emission Zones (LEZs), which exclude polluting vehicles from parts of a city, are spreading. Yet their optimal design is poorly understood. Unlike price instruments, LEZs ration access inefficiently, imposing costs on inframarginal drivers of restricted vehicles. Welfare is quasi-convex in LEZ size, yielding bang-bang principles: LEZs should be as large as possible or not implemented at all; cleaner vehicles (e.g., hybrids) could be exempt as transition technologies but later restricted, which may require planner commitment. Using new-car purchases, we find Madrid's LEZ shifted buyers toward cleaner cars, but the surplus losses of switchers and inframarginal drivers exceeded emission savings.

Keywords: Low; emission; zones (search for similar items in EconPapers)
JEL-codes: D12 H23 L98 Q53 R48 (search for similar items in EconPapers)
Date: 2026-11
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