Abstract
This paper analyzes the use of market-based emission regulation instruments to address the carbon dioxide emissions of transportation. Simulations with a static multi region computable general equilibrium model show that including transportation into the European emission trading system is superior to a closed emission trading system for transportation or a tax-based approach. Furthermore, we show that exempting transportation from emission regulation is the most favorable approach in terms of welfare. This result is due to a large tax interaction effect caused by high pre-existing fuel taxes in the transport sector.
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