Sustainable Automobile Transport
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Sustainable Automobile Transport

Shaping Climate Change Policy

Lisa Ryan and Hal Turton

Transport, and in particular road transport, represents a significant global threat to long-term sustainable development, and is one of the fastest-growing consumers of final energy and sources of greenhouse gas emissions. In this book, long-term energy–economy–environment scenarios are used to identify the key technological developments required to address the challenges passenger car transport poses to climate change mitigation and energy security. It also considers possible targets for policy support and examines some of the elements that contribute to the significant levels of uncertainty – particularly social and political conditions. The book then builds on this long-term scenario analysis with a broad review of recent empirical examples of relevant policy implementation to identify near-term options for the passenger transportation sector which may promote a shift towards a more sustainable transport system over the longer term.
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Chapter 8: Demand Side: Market-based Instruments

Lisa Ryan and Hal Turton


Market-based instruments have become popular in recent times among economists and subsequently policymakers because they address some of the failings of command-and-control policies such as static and dynamic inefficiency. Two important demand-side measures include emissions trading, which can provide flexibility to reduce aggregate greenhouse emissions at lower cost, while taxes and charges, in addition to emissions trading, advance the polluter pays principle, requiring polluters either to pay for their emissions or to carry out abatement actions. Both instruments provide an incentive for firms to invest in innovation in order to abate at lower cost than the price of an emissions permit or the tax. When the costs of abatement are passed through to consumers, these instruments act as demand-side charges to consumers and encourage the demand for less polluting goods. From the demand side, transport has relatively low fuel price elasticities: Ϫ0.12–Ϫ0.31 (short run) and Ϫ0.5–Ϫ1.39 (long run) and so charges will likely need to be high to have an impact on the passenger car sector. Price sensitivity or elasticity tends to increase if alternative destinations and transport modes are available and of good quality. For example, the extent to which travel demand is reduced as a response to an increase in vehicle or fuel price will be influenced by the alternatives available (VTPI, 2006). In theory, under perfect conditions,1 as shown in Section 7.1, taxes and emissions permits should have the same effect. However, Weitzman (1974) pointed out in his seminal paper that...

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