Policies to reduce cars' emissions between the opposing forces of technological change and demand for characteristics

Abstract

This paper carries out an empirical analysis of the determinants of CO2 emissions of new cars in Spain between 2015 and 2020. Technological change is shown to result in a decrease of emissions by 9%. However, the demand shift towards larger and more powerful vehicles has offset half of these gains. Moreover, the penetration of hybrid technologies has contributed to reducing emissions by a further 8.7%. Additionally, we estimate the determinants of emissions due to car characteristics, and we find that they are sensitive to socioeconomic and geographic variables, such as income, city size or its rural/urban character. We find an emissions elasticity with respect to fuel prices of -0.37. This is shown to be due to the purchase of less emitting cars and a higher share of more technologically efficient vehicles. Finally, scrappage programs, subsidies to the purchase of electric vehicles and the establishment of low emission zones succeed in reducing emissions. However, their effects are small and depend on the design of such measures.