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Integrating Sector-Wide Reforms for Mitigation
overloaded before the heavy-user charges for multi-axle trucks were eliminated (World Bank 2006). Of particular note, many environmental regulations related to land use, transit operations, nonmotorized facilities, and parking are local or regional. Thus, if government at these levels is not effective, regulation does not work well, particularly in developing countries. Costs of Implementation The regulatory approach can be more costly than other options, such as price incentives. For instance, the cost of imposing 10 percent lower CAFE standards is estimated at $3.6 billion, $228 per vehicle, raising prices for consumers and decreasing profits for producers (Austin and Dinan 2005). Inspection programs can also be costly. While fuel taxes are automatically collected at the gas pump, inspections also cost people time. The U.S. inspection program is estimated to cost $1,032 million a year, consisting of $479 million in drivers’ time and travel costs and $553 million in inspection costs (proxied by total inspection fees; Merrell and others 1999). Enforcing traffic rules can also be costly. There is an argument that strict speed regulation uses up too much highway patrol resources and could compromise other aspects of traffic safety. In fact, a study shows that fatality rates dropped by 3.4–5.1 percent when the U.S. government allowed states to increase speed limits from 55 mph to 65 in 1987. This has been interpreted to mean that the nationwide 55 mph speed limit was too costly to implement and overused fiscal resources (Lave and Elias 1997). The costs cannot be ignored when regulations are being enacted.
Box 3.6 Policy Options Compared There is a wide range of policy options available, and the implementation cost of each varies, as does its enforceability. Also, any policy may change consumer behavior. This comparison is thus based on a complex set of factors. In comparing fuel taxes with fuel economy standards, one study estimates that a 3-mpg improvement in U.S. Corporate Average Fuel Economy (CAFE) standards would impose welfare losses of about $4 billion to save 5.2 billion gallons of gas annually (Kleit 2004). The implied carbon price for this is an estimated $317 per tCO2–far above the current market price, which means that the policy is too costly.a An 11 percent increase in fuel taxes, which would cost much less, could both achieve the same emissions reduction and increase revenues (which could be used for mass transit and the like). The implied carbon price is more consistent with the market price. Another study similarly suggests that strengthening the CAFE standards would be too costly (Austin and Dinan 2005). Comprehensive road user pricing, such as cordon pricing, also seems too expensive if only direct investment costs are considered. However, cordon pricing brought in $237 million in box continues next page
Turning the Right Corner • http://dx.doi.org/10.1596/978-0-8213-9835-7