Effect of gasoline prices on urban air quality: Evidence from China new vehicle registrations

Abstract

The emissions from motor vehicle are increasingly becoming a major source of urban air pollution in China. This study examines the impact of fuel price on expected new vehicle prices based on a hedonic valuation model. Utilizing monthly panel data from Chinese cities and employing panel ordinary least squares regression and mediation effect models, this paper finds the effects of fuel price fluctuations on new vehicle registrations and air pollution. Empirical findings indicate that rising gasoline prices lead to an improvement in urban air quality by reducing the number of new vehicle registrations. The study categorizes vehicle engine displacement into five levels, revealing that higher gasoline prices prompt residents to reduce purchases of medium-displacement vehicles and shift to small-displacement vehicles, while the impact on the registration of larger-displacement vehicles is less pronounced. The purchase tax exemption for new small-displacement vehicles has a moderating effect. Considering China's uneven economic development, the influence of gasoline prices on new vehicle registrations gradually diminishes as regional residents' incomes rise. Gasoline prices are used by regulators to guide the restructuring of vehicle consumption, thereby helping to mitigate urban environmental problems.