DP8782 Designing Carbon Taxation Schemes for Automobiles: A Simulation Exercise for Germany

Author(s): Adamos Adamou, Sofronis Clerides, Theodoros Zachariadis
Publication Date: January 2012
Keyword(s): carbon taxation, CO2 emissions, feebates, German automobile market
JEL(s): L92, Q52, Q58
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8782

Vehicle taxation based on CO2 emissions is increasingly being adopted worldwide in order to shift consumer purchases to low-carbon cars, yet little is known about the effectiveness and overall economic impact of these schemes. We focus on feebate schemes, which impose a fee on high-carbon vehicles and give a rebate to purchasers of low-carbon automobiles. We estimate a discrete choice model of demand for automobiles in Germany and simulate the impact of alternative feebate schemes on emissions, consumer welfare, public revenues and firm profits. The analysis shows that a well-designed scheme can lead to emission reductions without reducing overall welfare.