Ex Ante Policy Evaluation of the Vehicle Type Regulation

Abstract

In this chapter, we conduct an ex ante quantitative policy evaluation of the vehicle type regulation that aims to control vehicle emissions. Imposed under the Automobile Nitrogen Oxides–Particulate Matter Act, the regulation promotes the earlier replacement of old, high-emissions vehicles by prohibiting the use and registration of old vehicles in metropolitan areas. Using vehicle registration data, we identify all vehicles subject to the regulation and estimate the cost of the regulation, namely, the opportunity cost of earlier replacement. The total cost is estimated to be 521 billion yen. In addition, the regulation clearly delivers benefits, including the health benefit resulting from reduced emissions. We calculate the extent to which emissions from all regulated vehicles have decreased. Specifically, using the estimates of the marginal external costs of air pollutants, we measure the benefit of the regulation, which is found to be 1,202 billion yen. Therefore, the regulation is a reasonable policy whose net social benefit exceeds its costs; the net benefit (i.e., benefits less costs) is 681 billion yen. However, the results also show that the marginal abatement cost differs substantially across polluters, suggesting that the cost is not minimized. To examine the extent to which social surplus could be increased, we conduct a simulation in which we change the terminal year for each vehicle type. The social surplus is found to double in our simulation results, indicating that the regulation could have been conducted far more efficiently if its costs had been thoroughly examined prior to implementation. Our results also suggest that the regulation is currently less effective than economic instruments such as emissions taxes, as optimal and efficient environmental policy can be realized by introducing an environmental tax.

Appendices

Appendix 2.1 Average Life Expectancy: L (Year)

Car age	STT	SMT	STB	SMB	STS	SMS	STP	SMP	STP	SMP
							Inspection every year		Inspection every two years
0	15.21	11.85	15.21	11.85	15.21	11.85	14.08	11.67	14.08	11.67
1	14.30	10.87	14.30	10.87	14.30	10.87	13.14	10.69	13.14	10.69
2	13.45	9.96	13.45	9.96	13.45	9.96	12.19	9.73	12.19	9.73
3	12.52	9.05	12.52	9.05	12.52	9.05	11.29	8.82	11.29	8.82
4	11.63	8.26	11.63	8.26	11.63	8.26	10.50	8.04	10.50	8.04
5	10.74	7.59	10.74	7.59	10.74	7.59	9.52	7.11	9.52	7.11
6	9.94	7.16	9.94	7.16	9.94	7.16	8.77	6.45	8.77	6.45
7	9.12	6.64	9.12	6.64	9.12	6.64	7.86	5.61	7.86	5.61
8	8.38	6.21	8.38	6.21	8.38	6.21	7.22	5.07	7.22	5.07
9	7.70	5.93	7.70	5.93	7.70	5.93	6.42	4.36	6.42	4.36
10	7.13	5.57	7.13	5.57	7.13	5.57	5.94	4.10	5.94	4.10
11	6.61	5.25	6.61	5.25	6.61	5.25	5.25	3.55	5.25	3.55
12	6.12	4.97	6.12	4.97	6.12	4.97	5.05	3.59	5.05	3.59
13	5.69	4.72	5.69	4.72	5.96	4.72	4.63	3.17	4.63	3.17
14	5.28	4.47	5.28	4.47	5.28	4.47	4.66	3.40	4.66	3.40
15	4.84	4.21	4.84	4.21	4.84	4.21	4.24	3.07	4.24	3.07
16	4.35	3.90	4.35	3.90	4.35	3.90	4.16	3.27	4.16	3.27
17	3.83	3.54	3.83	3.54	3.83	3.54	3.75	2.98	3.75	2.98
18	3.25	3.09	3.25	3.09	3.25	3.09	3.38	2.85	3.38	2.85
19	2.61	2.54	2.61	2.54	2.61	2.54	2.69	2.41	2.69	2.41
20	1.87	1.84	1.87	1.84	1.87	1.84	1.89	1.79	1.89	1.79
21	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00

1. Note: STT standard trucks, SMT small trucks, STB standard buses, SMB small buses, STS standard special-use vehicles, SMS small special-use vehicles, STP standard passenger vehicles, and SMP small passenger vehicles

The average life expectancy L _m was calculated as follows. First, the number of registered vehicles of vehicle type m and vehicle age k, N _m (k) was obtained from the “Survey on Vehicle Ownership in Japan” by AIRIA for standard trucks, small trucks, standard passenger cars, and small passenger cars. The disposal rate d _m (k) was then computed as follows:

$$ {d}_m(k)=\left({N}_m(k)-{N}_m\left(k+1\right)\right)/{N}_m(k) $$

(2.12)

From this disposal rate, the survival rate s _m (k) was calculated:

$$ \begin{array}{lll}{s}_m(k)={s}_m\left(k-1\right)\;\left[1-{d}_m\left(k-1\right)\right]\hfill & if\hfill & k\ge 1\hfill \\ {}{s}_m(0)=1\hfill & if\hfill & k=0\hfill \end{array} $$

(2.13)

Using the survival rate, the average life expectancy L _m (A) for a vehicle of age A was then calculated:

$$ {L}_m(A)=\frac{{\displaystyle {\sum}_{k=A}^{21}{s}_m(k)}}{s_m(k)} $$

(2.14)

Appendix 2.2 The Number of Vehicles Replaced, NR ^t

Let N ²⁰⁰³ _r represent the number of vehicles in 2003 that are initially registered in year r and s(k) the survival rate calculated in (2.12). Using s(k), we can compute N ^t _rm , the number of vehicles of a given type in a given area in year t, as follows:

$$ {N}_r^t={N}_r^{2003}\times s\left(t-r\right)/s\left(2003-r\right) $$

(2.15)

where $t-r$ represents the vehicle age in year t and $2003-r$ the vehicle age in 2003.

Using the above equation, we estimated the number of vehicles that are retired because of the VTR. For example, there were 581,192 regulated standard trucks in 2003 that were initially registered in 1990. Based on (2.15), by the time these trucks become subject to the ban in 2005, 70,949 of them would have already been replaced as a result of the natural replacement process. Thus, the number of vehicles actually subject to the ban in 2005 is 510,243.

Note that NR ^t, the number of vehicles replaced, is not identical to the number of vehicles, N ^t _r . According to JAMA (2005a, b), some vehicle owners choose to comply with the regulation not by replacing their vehicles but by disposing of them or using them outside of the enforcement areas. Thus, it is necessary to identify the extent to which regulated vehicles are replaced.

JAMA (2005a, b) conducted a firm-level survey in which firms are allowed to provide multiple answers. In cases in which a firm selects more than one practice for a given question, this study assumed that all of the chosen practices were employed with the same proportion. We also assumed that each firm has the same number of vehicles.

Based on these assumptions, we were able to compute the proportion of vehicles replaced as follows. First, we summed the percentage of each response and likewise summed the percentage of the “replacement” response. Dividing the latter by the former, we obtained the percentage of vehicles replaced. We found that the percentages of standard trucks replaced are 57 %, 71 %, and 42 % in Tokyo, Osaka, and Nagoya, respectively, and those for small trucks are 43 %, 68 %, and 61 % in Tokyo, Osaka, and Nagoya, respectively.

We use the percentage of small trucks for small buses and small special-use vehicles as well as that of standard trucks for standard special-use vehicles and standard buses for each region. Because information is not available on small and standard passenger vehicles and because these types of vehicles are unlikely to be moved outside of the enforcement areas for continuous use, we assumed that all of these vehicles are replaced (i.e., we assumed that their replacement percentage is 100 %).

Denoting rp as the replacement rate, we can express the number of vehicles replaced, NR ^t _r , in year t for vehicle type m in region j without the regulation as follows:

$$ N{R}_r^t=rp\times {N}_r^t $$

(2.16)

Appendix 2.3 Mileage Adjustment Rate

Because we assumed that ${\overline{TD}}_r$ is constant over time, dr ^t _r varies subject to Eq. (2.17). The numbers of regulated vehicles after and before terminal year T _r are ${N}_r^{2003}-{N}_r^{T_r}+N{R}_r^{T_r}$ and N ²⁰⁰³ _r , respectively. Therefore, the first and second equations in (2.17) are the total mileages after T _r and before T _r , respectively.

$$ {\overline{TD}}_r=\left\{\begin{array}{ll}D\times d{r}_r^t\times \left({N}_r^{2003}-{N}_r^{T_{rm}}+N{R}_r^{T_r}\right),\hfill & if\;{T}_r\le t\hfill \\ {}D\times {N}_r^{2003},\hfill & if\;{T}_r>t\hfill \end{array}\right. $$

(2.17)