The diffusion of cleaner vehicles in CO2 emission trading designs

The accelerated diffusion of cleaner vehicles to reduce CO₂ emissions in transport can be explicitly integrated in emission trading designs by making use of cross-sectoral energy efficiency investment opportunities that are found in data on CO₂ emissions during the production and the use of cars and trucks. We therefore elaborate the introduction of tradable certificates that are allocated or grandfathered to manufacturers that provide vehicles (and other durable goods) that enable their customers to reduce their own CO₂ emissions. This certificate is an allowance for each tonne CO₂ avoided. Manufacturers can then sell these certificates on the emission market and use the revenues to lower the price of their cleanest vehicles. This mechanism should partially overcome the price difference with less efficient cars. In a simulation, we found that the introduction of the certificate in tradable permit systems can lead to very significant reductions of CO₂ emissions. The simulations indicate that CO₂ emissions resulting from the car fleet can be reduced by 25 to 38% over a period of 15 years (starting in 1999). For the truck fleet, the reduction potential is more limited but still very interesting.