Measuring foregone output under industry emission reduction target in the transportation sector

Numerous countries have implemented or are considering a range of policies to lower emissions from transportation. An analysis of the impacts of environmental regulation is a crucial issue, which has not been properly highlighted in the transportation literature, particularly in terms of the foregone output by such regulation. This study develops a novel DEA model that measures the foregone output when the industry emissions target is imposed. This model reflects the real regulatory process more appropriately than other models in that the authority in charge sets the emission reduction target first, and the transport operators respond to it. In addition, the model can test the industrywide impacts over a wide range of emission target values, which can help policy makers determine the optimal emission target. Finally, the proposed model was applied to the port industry in Korea. The results suggest that Korean ports can reduce their emissions by a maximum of 239,850 tons of CO₂, which accounts for 13% of the total emissions in 2010. The 13% reduction in emission, however, would result in $ 91,109,000 of foregone cargo traffic to the Korean economy. In addition, the foregone cargo traffic increases at much faster rate than the emission reduction rate. For example, the shadow price of emission differs by 2.25 times between the most moderate and strictest emission targets. This suggests that the government needs to impose moderate emission targets at the initial stages if it decides to minimize the regulatory impacts on the industry.