The effectiveness of policy on consumer choices for private road passenger transport emissions reductions in six major economies

Abstract

The effectiveness of fiscal policy to influence vehicle purchases for emissions reductions in private passenger road transport depends on its ability to incentivise consumers to make choices oriented towards lower emissions vehicles. However, car purchase choices are known to be strongly socially determined, and this sector is highly diverse due to significant socio-economic differences between consumer groups. Here, we present a comprehensive dataset and analysis of the structure of the 2012 private passenger vehicle fleet-years in six major economies across the World (UK, USA, China, India, Japan and Brazil) in terms of price, engine size and emissions distributions. We argue that choices and aggregate elasticities of substitution can be predicted using this data, enabling us to evaluate the effectiveness of potential fiscal and technological change policies on fleet-year emissions reductions. We provide tools to do so based on the distributive structure of prices and emissions in segments of a diverse market, both for conventional as well as unconventional engine technologies. We find that markets differ significantly between nations, and that correlations between engine sizes, emissions and prices exist strongly in some markets and not strongly in others. We furthermore find that markets for unconventional engine technologies have patchy coverages of varying levels. These findings are interpreted in terms of policy strategy.

Assessing the effectiveness of South Africa’s emissions based purchase tax for private passenger vehicles: a consumer choice modelling approach.

“…It is also useful to illustrate the relationships between price, engine size and emissions for the South African vehicle market. It is assumed that vehicles with a larger engine size are typically more luxurious and expensive (Mercure & Lam, 2015). This property holds true for the South African data set as shown by the strong positive relationship between engine size and the logarithm of price in the first panel of Figure 3.…”

“…For this reason, consumer choice modelling can be done successfully without considering fuel prices. Mercure and Lam (2015) also demonstrated that, even if consumers consider the lifetime fuel costs of vehicles at the time of purchase (under various discount rates), this cost is significantly lower than the initial investment of a vehicle purchase. Consequently, the fleet emissions reductions achieved per 1% tax on fuel are always smaller than equivalent tax rates on the vehicle purchase price.…”

“…This may manifest in people purchasing vehicles from a specific price subset of the vehicle market that is suitable to their social group and income level. Mercure and Lam (2015) represented this idea graphically by overlaying the lognormal income distribution of the UK population with the similarly shaped price distribution of vehicle sales for 2012 (Figure 1). …”

“…They appear only in the upper price ranges grouped at approximately R400 000 and R800 000 and, therefore, they do not cater to consumers in the lower price ranges (where most vehicles are purchased). The distribution, in this regard, differs from the UK's where hybrids are available across most price brackets (Mercure & Lam, 2015). It is also useful to illustrate the relationships between price, engine size and emissions for the South African vehicle market.…”

“…The policy impact is evaluated by comparing the emissions outcomes of the modelled and observed consumer behaviours. The discrete choice model used in the analysis is based on the model developed by Mercure and Lam (2015). It is built on the assumptions of consumer choice drawn from economic theory, marketing literature and consumption anthropology.…”