Publication Detail

Economic Incentives to Introduce Electric and Natural Gas Vehicles and Reduce Mobile Source Emissions


Research Report

Suggested Citation:
Kling, Catherine, Michael Q. Wang, Daniel Sperling (1991) Economic Incentives to Introduce Electric and Natural Gas Vehicles and Reduce Mobile Source Emissions. Institute of Transportation Studies, University of California, Davis, Research Report UCD-ITS-RR-92-06

This research project addresses the form of government intervention for introducing electric and natural gas vehicles. The primary focus of this research is the cost savings from employing a marketable permit system (MPS) relative to traditional regulatory approaches for meeting current and future emission control standards. The research project is divided into two parts. In the first part, marketable permits for the introduction of alternative fuel vehicles (AFVs) are examined. In the second part, a permit system for the adoption of alternative fuels is addressed. This document reports on the work completed to date on marketable permits for vehicles.

To estimate the costs of emission control with a MPS, data on emission control costs for conventional gasoline vehicles were collected. A survey of car dealers for twelve vehicle manufacturers in the Sacramento area was performed from January 1991 through July 1991. Dealers were asked to provide cost information on emission control parts for a variety of engine families. These data were combined with information on manufacturers' and dealers' markup and assembly costs to estimate the total costs of emission control per vehicle. These data suggest that, on average, vehicle manufacturers spend about $840 per vehicle for emission control purposes. There is substantial variation among manufacturers, with American producers reporting the lowest emission control costs and European reporting the highest. Total emission control costs for new cars sold in California in 1990 are estimated to be about $1.3 billion. Data on the emission characteristics of conventional vehicles were obtained from CARS's certification data. These data provide an important baseline for establishing the economic competitiveness of EVs and CNGVs.

Cost functions relating the total cost per vehicle to emissions per vehicle were estimated using the data collected for conventional vehicles. Significant differences were found in the cost functions by manufacturer and vehicle class. A simulation model of manufacturers' behavior was built wherein manufacturers are assumed to minimize the costs of emission control subject to meeting an emission standard. The effects of emission averaging and trading on the costs are estimated in this framework.

In our simulation model, we used the current certification levels rather than the true standards so that emissions are not allowed to increase over current levels. The cost savings estimated by the model can then be attributed to the marketable permit system rather than to a worsening of air quality.

In the first series of simulations using this model, the cost savings of using a permit system for gasoline vehicles to meet 1990 HC emission levels was estimated. In this system, manufacturers were allowed to average emissions by vehicle class (small, medium, and large cylinder) and to trade emissions across manufacturers. Preliminary results indicate cost savings attributable to the permit system to be up to $170 per vehicle, depending upon assumptions regarding changes in vehicle sales and functional form of the cost functions.

In the second set of results, a permit system similar to CARS's low-emission vehicle program is simulated and the value of emission reductions from clean fueled vehicles is estimated. These values are found to be largest for the lowest emitting vehicles. The values increase over time as emission standards tighten, as long as the vehicle meets the standards in that period. The results presented here are preliminary and should be viewed as a first attempt to quantify the benefits of a MPS for automobile manufacturers. However, they do suggest that there may be significant cost savings associated with a permit system relative to an inflexible standard.