After electricity production, transport emissions make the greatest contribution to climate change, generating over 17% of the carbon emissions from burning fossil fuels. And transport is a fast-growing sector, making 30% of total emissions growth. Some forms of public and commercial transport, such as buses, are already moving over to cleaner and more efficient technologies in an effort to reduce their emissions. However, private vehicles, depending on consumer choices, may be lagging behind. Jean-Francois Mercure and Aileen Lam, both from Cambridge University, UK, have investigated the effectiveness of different policies and taxation schemes in reducing emissions from private cars.

Previous empirical work has shown that when it comes to buying a car, we tend to "keep up with the Joneses". Most of us are influenced by the cars we see sitting on our neighbours’ drives and will choose a car that matches what other people of the same socio-economic status drive. So what kind of impact, if any, do emissions taxes have? To explore this question Mercure and Lam gathered data on private passenger vehicle sales during 2012 in six major economies across the world – the UK, US, China, India, Japan and Brazil - and analysed relationships between prices, engine sizes and emissions.

The authors simulated the most likely change of choice of consumers of every vehicle model, given hypothetical one-off tax incentives on emissions (or engine size) included in the purchase price. By dividing the average fleet-year emission reductions by the average amount of tax paid, Mercure and Lam derived a tax effectiveness scale.

The values ranged between 0.2 and 0.4 g of carbon dioxide per kilometre driven per percent of tax applied for all countries studied except for the US, where the value is between 0.6 and 0.9 g of carbon dioxide per kilometre driven per percent of tax. For example, if the average tax on vehicles amounts to 10% of the average vehicle price, the emissions of the new tranche of vehicles would be reduced by between 6–9% in the US or by 2–4% elsewhere. "This means that emissions are likely reduced more in the US than elsewhere for the same amount of tax applied," said Mercure, whose findings are published in Environmental Research Letters (ERL).

The authors also showed that taxes produce a comparatively diminishing incentive as the engine size, and price, increases. "The data show that emissions – or engine sizes – are on average proportional to the logarithm of vehicle prices, and therefore it is likely that high-price vehicle consumers are not incentivised as much by a tax proportional to emissions, i.e. a price of carbon, as lower vehicle price consumers, and do not change their choice of vehicle as frequently," said Mercure. These patterns were similar in all six countries studied, but the strength of the correlations varied across markets.

Similarly, the scientists showed that taxes applied to fuels, which are by nature proportional to emissions, also have a diminishing effect as vehicle size increases. Meanwhile, they showed that subsidies on the price of lower-emissions hybrid vehicles can sometimes have the opposite of their intended effect, driving emissions up. "Low-cost petrol- and diesel-engine vehicles often have lower emissions than mid-range or luxury hybrid vehicles so, according to our model, subsidies on these mid-range vehicles can increase emissions by encouraging some people to upgrade vehicle size," said Mercure.

Comparing countries revealed how culture and regulatory history have shaped vehicle markets over time. Not surprisingly, engines tend to be larger and emissions greater in the US, which has had a history of comparatively low fuel prices and limited regulation on vehicles. Meanwhile, Japan's narrower vehicle market with significantly lower average emissions has been shaped by its long history of higher fuel prices, fuel efficiency and innovation policies, aimed at reducing pollution and based on reliance on expensive fossil-fuel imports.

But regardless of the differences between countries, socio-economic factors and status exert the biggest influence when it comes to purchasing a car. "In order to effectively use policy to reduce emissions in the private passenger vehicle sector, policy-makers must understand what drives consumers in their choices of vehicle purchases," said Mercure. "For this, they must use analysis methods similar to those used in marketing: understanding all consumer types and their diversity, and finding out how to make certain vehicle types more attractive to certain groups, and how to make other types less attractive."

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