The use of transferable permits in transport policy

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Abstract

This paper considers potential use of domestic transferable, or tradable, permit systems for the purposes of travel management, especially reducing environmental nuisances. The main arguments for and against the use of permits are analyzed. Secondly two case studies of existing permit systems are examined. The main conclusions are that tradable permits can address greenhouse gas and regional atmospheric pollutant emissions, and are suitable for congestion on a restricted time–space basis. Permits applied to mobile sources are technically feasible at acceptable financial cost for protecting sensitive geographical areas, and schemes applied to automakers for unitary vehicle emissions are also viable.

Introduction

Local and regional airborne pollutants produced by automobiles can be harmful to human health. The continuous rapid growth in vehicle kilometers traveled (VKT) is tending to offset improvements in fuel quality and vehicle emission standards in most member states of the Organization for Economic Cooperation and Development (OECD), and the rapidly growing use of older in developing countries is a major source of air pollution in urbanized areas of the developing world (Onursal and Gautam, 1997). In most industrialized countries the transport sector is one of the major greenhouse gases (GHG) emitters, particularly of CO2 (generating for instance 34% of CO2 in France in 1999 and 30% of CO2 in the US in 1997). Moreover, transport is the second highest growth sector in terms of GHG emissions in the OECD area, with its share of CO2 emissions increasing from about 25% in 1995 to 30% in 2020 (Organisation for Economic Cooperation and Development, 2000a).

Numerous synthesis studies have already considered how transport activity could be made less harmful to the environment (European Conference of Ministers of Transport, 1997; Organisation for Economic Cooperation and Development, 2000b). An important finding of this type of work is that transport emission reduction strategies should involve multiple technological, economic and societal measures, including slowing down the growth of VKT. Among the wide range of policy instruments available for managing transport activity, transferable (or tradable) permits (TPs) are attracting interest. However, although several proposals for the application of TPs in specific fields of transport have been made, there has hardly been any implementation.

Section snippets

Why transferable permits in the transportation sector?

The economic theory behind pollution permit markets can be traced back to the work of Coase (1960) on external costs, followed by that of Dales (1968) on regulating water use, and the formalization of pollution permit markets by Montgomery (1972). According to a general definition given by Godard (Organisation for Economic Cooperation and Development, 2001), transferable permits cover a variety of instruments that range from the introduction of flexibility into traditional regulation to the

Ecopoint program in Austria

Ecopoint is a program for limiting pollution and noise from truck traffic passing through Austria. It involves quotas, but these are of the `cap but no trade' type, since they are not transferable.

Through Austria pass the north–south route between Italy and Germany and one of the major links between countries of Eastern Europe and Western Europe. Austria's mountainous geography funnels north–south traffic into ecologically fragile Alpine valleys, notably the Brenner Valley. The morphology of

Conclusions

The Ecopoint system has shown that it is technically possible to apply a quota-based system of permits to mobile sources within a defined area, at an acceptable financial cost. It therefore goes some way towards quelling objections that administrative costs of permit systems for mobile sources will be too high. However the region of application must be one where points of entry and exit are few and readily controllable. A trade-off has to be made between the number of points to be controlled

Acknowledgments

This paper has benefited from comments made by those taking part in the OECD informal experts workshop on domestic tradable permits in September 2001 and subsequent anonymous reviewers. Valuable comments by Kenneth Button are also acknowledged.

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