The price is right? The limitations of market mechanisms in encouraging low carbon mobility

Abstract

The automotive industry must embrace a low carbon mobility future. One way to encourage this is via incentives for consumers to use their existing vehicles more efficiently, and to purchase vehicles with technologies that mean they produce lower CO2 emissions. The conventional wisdom holds that market mechanisms, which alter the price signals faced by consumers, should be crucial in changing consumer behaviour and stimulating demand for such vehicles. However, this article cautions against the degree to which market mechanisms may be relied on. Because of the price inelasticity of demand for fuel, the endurance of national and regional preferences that are resistant to market price signals for the uptake of new vehicles, and supply-side considerations, a more interventionist policy response will be necessary for driving, rather than stimulating, demand for vehicles with lower CO2 emissions.