![Sample our Geography journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5937/TOC-Subject-Sample-2021-Geography.jpg"})
Abstract
High taxes on new cars in Israel provide an incentive for car owners to defer the purchase of new vehicles. The result is a vehicle fleet of older, more polluting vehicles, with air pollution costs estimated at up to $530 million annually. The purpose of this paper is to conduct a cost benefit analysis (CBA) of an accelerated vehicle-retirement (AVR) programme. The analysis considers the private car fleet as well as trucks and buses. The study develops an economic model to identify the optimal payment level that will maximise the net benefit of the programme, and then apply the model to three different vehicle categories. It finds that an AVR programme for private cars may indeed yield significant net benefits, while a similar programme for trucks and buses fails to meet the cost-benefit test. For private cars, the study finds that even according to a conservative estimate, the programme will result in the voluntary retirement of approximately 98,000 private cars, with a present value net benefit of more than $50 million. This is equal to a 17% reduction in total annual private car air pollution costs for the five-year time span of the proposed programme.
Notes
1. Corporate Average Fuel Economy (CAFE) is a US regulation first enacted in 1975. The purpose was to improve the average fuel economy of cars and light trucks in the wake of the 1973 Arab oil embargo.
2. As one referee correctly pointed out, for a cost benefit analysis budgetary costs are irrelevant (besides the deadweight loss with which they are associated). However, it is often precisely budgetary costs that determine whether such a programme will be implemented or not.
3. This is true for the vast majority of cases. However, there are a few specific old models whose price is higher than that of newer models, such that the social benefit gained by inducing their retirement is lower. However, based on the empirical data here, it is safe to say that these cases do not have a significant effect upon the results.
4. Throughout the analysis it is assumed there is a perfectly elastic supply of new cars. This is true for a small country like Israel where all new cars are imported, but may not be true for a larger country with local car production. In such a case, the results of the analysis may turn out different from this one. It is also assumed that the price schedule of used vehicles will not be affected by the AVR programme.
5. Of course, it may serve as a budgetary funding source for the programme.
6. Money values are stated throughout the paper in terms of NIS in 2003.
7. In the case of a two-car family (where the participant in the programme chooses to get by with one family car), the benefit is actually lower, because the remaining car will presumably be used more often than before. However, this possibility is still better from an environmental perspective than the possibility that the retired car will be replaced by a new one. Therefore, the benefits of this scenario fall somewhere between the benefits of the two baseline scenarios.
8. $1 equals approximately 4.2 NIS.
9. Calculated according to 1-(0.88)5 = 0.48.
10. The explanation is the same as for private cars – a 33% natural retirement rate means that without the programme, in 1.7 years approximately 50% of the trucks will be retired.
11. If the owner buys a new car in place of the old one, benefits equal the difference between pollution costs of an old and new car. If he does not buy a new car the benefits are higher.
12. A new car refers here to a 2003 model.