Thoughts on the economics of vehicle emissions regulation

Motor vehicle pollution is a problem within the highly urbanised cities of Australia where vehicles are estimated to contribute up to 70% of total urban air pollution (NSW EPA, 1999).

According to the ABS (2010), transport accounts for around 15% of Australia’s greenhouse gas emissions in which road transport accounted for 86% of all transport emissions. In an effort to reduce the level of harmful emissions emitted from motor vehicles, Australia, like other countries has chosen to directly set and regulate emission limits for all new vehicles.

A study by Reynaert (2015) found that car manufacturers choose to comply with the regulation by adopting new technology to develop cleaner and more fuel efficient cars. However, in September 2015, the world’s number one light vehicle manufacturer, Volkswagen (VW), was found to have cheated car emissions tests in the United States using the now infamous “defeat device” software on its ‘clean’ diesel vehicles. It has been reported that around 11 million vehicles worldwide are affected with VW vehicles testing around 15 to 35 times the legislated limits in the United States.

The scandal brings to light the options available to government to reduce motor vehicle emissions whether that be through regulation as currently adopted or through other mechanisms such as taxes and pricing.

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