Costs and Distributional Effects of Climate Transformation of the Vehicle Fleet in the EU

Abstract

This study estimates the minimum total cost and distributional effects among countries transforming the car fleet in the EU to reduce emissions of carbon dioxides by 2050 by switching from fossil fuel-driven passenger cars to hybrid and electric-driven cars. Minimum cost is estimated using a dynamic optimization model in which costs are calculated as decreases in consumer surplus in the demand for vehicles under given annual increases in travel demand, carbon efficiency and technological improvement of electric cars. Distributional effects are calculated for the cost-effective allocation of costs among the EU member states and UK. Calculations are made for different emission reductions, and the cost for achieving a 60% reduction from the 1990 emission level ranges between 0.13% and 0.61% of the EU’s GDP depending on assumptions about development of travel demand and carbon efficiency. The results indicate a slightly regressive allocation in most scenarios, where the cost share is relatively high for low income countries.