Steering change or driving injustice? When environmental policy intentions meet behavioral realities

ABSTRACT

Because private vehicles are among the most polluting consumer goods, many countries have introduced policy measures to reduce energy use, curb pollution, and mitigate negative externalities. A major challenge with such policies is that they can create distributional injustices among consumers, manufacturers, and the environment. One frequently used policy measure involves imposing high purchase taxes on high-emission vehicles while offering tax reductions for low-emission ones. We examine such a policy that was implemented in Israel. By comparing market equilibrium under the policy with a simulated no-policy counterfactual, we show that the policy generated considerable distributional injustices that extend well beyond the rise in manufacturers’ surplus. Another policy currently considered in numerous countries is a mileage tax, intended to correct the distortions created by fuel taxes in the era of electric vehicles. We outline potential steps to enhance the perceived justice of such a radical policy instrument.