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In 2007, the Norwegian government reformed the vehicle registration tax in order to reduce the carbon intensity of the new car fleet by incentivizing the purchase of more fuel efficient cars. This paper identifies the impact of the new tax structure on three main dimensions: (i) the average CO2 emissions intensity of new registered vehicles, (ii) the relative change in sales between low and high polluting cars and (iii) the market share of diesel cars. A Difference in Difference approach is employed to estimate the short run effects on each outcome variable of interest. The results show that the average CO2 intensity of new vehicles was reduced in the year of the implementation of the reform by about 7.5 g of CO2/km. This reduction is the result of a 12 percentage points drop in the share of highly polluting cars and of an increase of about 20 percentage points in the market share of diesel cars.

In 2007, the Norwegian government reformed the vehicle registration tax in order to reduce the CO2 emissions intensity of the new car fleet by incentivizing the purchase of more fuel efficient cars. This paper identifies the impact of the new tax structure on four dimensions: 1) the average CO2 emissions intensity of new registered vehicles, 2) the relative change between low and high polluting cars, 3) the market share of diesel cars and 4) the average weight of the fleet. A Difference in Difference approach is employed to estimate the short run effects on each outcome variable of interest. The results show that, as a consequence of the tax reform, the average CO2 intensity of new vehicles was reduced in the short run by at least 6 gCO2/Km, which is about half of the overall reduction observed when including supply effects. This reduction is the result of a 12 percentage points drop in the share of highly polluting cars and of an increase of about 23 percentage points in the market share of diesel cars. Lastly, the mass of the average fleet increased by at least 10 Kg.

AbstractVehicle registrations have been shown to strongly react to tax reforms aimed at reducing CO2 emissions from passengers' cars, but are the effects equally strong for positive and negative tax changes? The literature on asymmetric reactions to price and tax changes has documented asymmetries for everyday goods but has not yet considered durables. We leverage multiple vehicle registration tax (VRT) reforms in Norway and estimate their impact on within car-model substitutions. We estimate stronger effects for cars receiving tax cuts and rebates than for those affected by tax increases. The corresponding estimated elasticity is − 1.99 for VRT decreases and 0.77 for increases. As consumers may also substitute across car models, our estimates represent a lower bound.