Cost-Effective Policies to Reduce Vehicle Emissions

摘要

To compare "cost-effectiveness" of different abatement methods, many studies estimate production or cost functions and plot the marginal cost curve for using each method to achieve more abatement. Normally the cost is additional outlay by the firm (e.g., added equipment, process changes, or fuel switching). Each method may have diminishing returns, however, so the marginal cost of abatement (MCA) may start at different points and rise at different rates.1 Then efficiency requires the planner to pursue each method to the point where all have the same MCA. Or, as pointed out by Arthur C. Pigou (1920), an emissions tax gives incentive for firms to pursue each method until its MCA equals the tax rate, which achieves the same efficiency.