Carbon Prices and Automobile Greenhouse Gas Emissions: The Extensive and Intensive Margins

Abstract

The transportation sector accounts for nearly one third of the United States' greenhouse gas emissions. While over the past number of decades, policy makers have avoided directly pricing the externalities from vehicles, both in terms of global and more local pollutants and Corporate Average Fuel Standards have changed little since the mid-1980s, there is now considerable interest in reducing greenhouse gas emissions form the transportation sector. Many have argued that the unique features of the sector imply that pricing mechanisms would have little affect on emissions. This paper analyzes how pricing carbon through either a cap and trade system or carbon tax might affect greenhouse gas emissions from the transportation sector by estimating how changes in gasoline prices alter consumer behavior. We analyze their effect on both the intensive (e.g., vehicle miles travelled) and extensive (e.g., vehicle scrapping) margins. We find large effects on both margins.