Publication Detail

The Use of a Marketable Permit System for Light-Duty Vehicle Emission Control


Research Report

Suggested Citation:
Wang, Michael Q. (1992) The Use of a Marketable Permit System for Light-Duty Vehicle Emission Control. Institute of Transportation Studies, University of California, Davis, Research Report UCD-ITS-RR-92-03

The current regulation of light-duty vehicle emissions in the U.S. requires each and every vehicle to meet uniform emission standards. This approach lacks flexibility in the ways in which manufacturers meet emission standards and gives little or no incentives for manufacturers to beat emission standards. This results in costly and lengthy reductions in motor vehicle emissions. To reduce the cost of achieving a pre-determined emission reduction goal, this dissertation proposes the use of a marketable permit system for light-duty vehicle emission control.

Through a marketable permit system, a vehicle manufacturer is allowed to average emissions across individual vehicle engine families to meet corporate average vehicle emission standards. A manufacturer whose average vehicle emission rates are below average standards earns emission reduction credits equal to the difference between the standards and its average rate, multiplied by its vehicle sales volume. Manufacturers are allowed to bank emission reduction credits for future use and/or trade the credits among each other. A marketable permit system will have different emission impacts than the current regulatory system. However, these emission impacts can be addressed by careful system design.

The ultimate benefit of using such a marketable permit system is its emission control cost savings, relative to the current regulatory system. This dissertation has estimated these cost savings. The emission control costs and emissions of different vehicles have been estimated and collected. Using these data, vehicle emission control costs as a function of vehicle emissions have been estimated. A simulation model has been established to simulate vehicle manufacturer production behavior under a marketable permit system. Using the simulation model, I have estimated that, in California, the marketable permit system can save $150-$400 million per year, or $86-$235 per new vehicle sold. Reductions in air pollution control costs are especially needed to meet tough air pollution requirements in the future. Environmental regulators and legislators need to work together to reform the current air pollution regulation approach in general, and the vehicle emission regulation approach in particular, by applying the marketable permit system to air pollution control.
Ph.D. Dissertation.