The use of economic instruments in managing the environmental externalities of road transport

The transport sector is the third largest and second fastest growing source of greenhouse-gas (GHG) emissions in Australia. Unless the Australian government and consumers reverses this trend, CO2 emissions will continue to rise and offset any gains made in reducing carbon emissions in other sectors. Further, ignoring the problem of carbon emissions from the transport sector will jeopardise Australia’s efforts to meet its current and future international obligations to reduce the nation’s GHG emissions, and will place a greater burden on other sectors to make greater cuts in emissions. The Australian government has no regulatory or economic instruments, or any ambitious targets to encourage a transition to lower carbon vehicles. While other countries in the Organization for Economic Co-operation and Development (OECD) have set and legislated ambitious targets to reduce road-transport emissions, the Australian government is projecting future growth in emissions from this sector. This growth is due to the unrestricted importation of high-emitting vehicles, significant growth in consumers’ preference for high-emitting SUVs, and a slow decline in consumers purchasing light and small vehicles. The challenge for Australia is to reduce emissions from the road-transport sector, which is almost entirely dependent on fossil fuels. To reduce road-transport emissions will require the introduction of strong economic instruments and complementary instruments to encourage behavioural change in consumers so that they choose more fuel-efficient lower carbon emitting vehicles. This thesis examines individual policy instruments and combinations of policy instruments that are required to encourage behavioural change in consumer car-purchasing trends to lower the average carbon emissions from new passenger and light commercial vehicles (new light vehicles) in Australia. This thesis considers the effectiveness of economic-policy instruments that include a carbon price on the cost of fuel under an emissions-trading scheme and carbon tax ; reforming fiscal taxes into fiscal environmental taxes; and using command and control regulatory instruments.