Regulating CO2 Emissions of Transportation in Europe : A CGE-Analysis Using Market-Based Instruments

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