Cost-benefit analysis of an accelerated vehicle-retirement programme

Abstract

High taxes on new cars in Israel provide an incentive for car owners to defer the purchase of new vehicles. The result is a vehicle fleet of older, more polluting vehicles, with air pollution costs estimated at up to $530 million annually. The purpose of this paper is to conduct a cost benefit analysis (CBA) of an accelerated vehicle-retirement (AVR) programme. The analysis considers the private car fleet as well as trucks and buses. The study develops an economic model to identify the optimal payment level that will maximise the net benefit of the programme, and then apply the model to three different vehicle categories. It finds that an AVR programme for private cars may indeed yield significant net benefits, while a similar programme for trucks and buses fails to meet the cost-benefit test. For private cars, the study finds that even according to a conservative estimate, the programme will result in the voluntary retirement of approximately 98,000 private cars, with a present value net benefit of more than $50 million. This is equal to a 17% reduction in total annual private car air pollution costs for the five-year time span of the proposed programme.