Diesel Cars and Environmental Policy

Abstract

In this paper, I measure the costs of environmental taxation of car ownership and usage in Denmark. Using full population Danish register data covering 1997–2006, I estimate a discrete-continuous model of car choice and usage that explicitly allows households to select cars based on expected usage conditional on observed and unobserved heterogeneity. I validate the model using a major Danish reform in 2007 which prompted a substantial shift in the characteristics of purchased cars unique to the Danish setting compared to the rest of Europe. Through counterfactual simulations, I find that both Danish reforms in 1997 and 2007 were cost-ineffective at reducing CO2 emissions compared to a fuel tax. Moreover, I find that the diesel market share responds strongly to taxation but that environmental goals can be reached both with and without a large diesel share in the fleet.

Anders Munk‑Nielsen

Associate Professor of Economics

I do research in Empirical Industrial Organization