An Emission Saved Is an Emission Earned: An Empirical Study of Emission Banking for Light-Duty Vehicle Manufacturers

This paper presents results of an empirical study of emission banking for light-duty vehicle manufacturers. An intertemporal model of manufacturers′ choices is combined with econometrically estimated abatement cost functions to simulate the cost savings and emission effects of an averaging, trading, and banking marketable permit system relative to command-and-control regulations. While the cost savings of such a system are estimated to be modest, the intertemporal emission effects may be sizable. The sensitivity of the results to discount rates, abatement cost functions, and model specifications is also explored.