Essays on climate policy and transportation

Private vehicles are a major source of greenhouse emissions and an exemplar of the political contentiousness of climate action. Through direct ballots and protest movements such as the Yellow Vests, voters have repeatedly rejected carbon pricing – a policy recommended by economists with remarkable consensus due to its theoretical efficiency and empirical effectiveness – with appeals to the costs it imposes on low-income households that depend on their fossil-fuel powered car. In this thesis, I study the distributional impacts and political acceptability of transportation sector carbon pricing (namely fuel taxation), and the abatement potential of alternative, place-based policies. In the first essay, my co-author and I use odometer readings recorded to the Finnish vehicle registry at mandatory vehicle inspections, with information on the fuel efficiency and ownership of all cars in the registered fleet, to show that lower income households pay a smaller share of their disposable income in fuel taxes than do those above median income. Aggregate regressivity is thus not a sufficient explanation for public resistance to fuel taxes at least in the Finnish context. Instead, voters may perceive them as unfair because their impacts are very heterogenous within income levels: we show that income deciles account for just 1.5% of the total variation in tax burdens. The remaining variation is also only partially explained by household composition, degree of urbanity, employment status, and a rich set of other characteristics we observe in the data, making it difficult to substantially diminish this “horizontal” inequity through recycling of the tax revenues – in contrast to the “vertical” inequity between income classes which could be addressed easily through equal rebates. The objective costs also paint only a partial picture of the winners and losers of carbon pricing, as voters have heterogenous attitudes towards climate policies, too. In the second essay, I link a government-backed poll on the acceptability of fuel price increasing climate policy to the aforementioned registry data to show that variation in voters’ willingness to pay for a well-known climate target dominates the cost-side variation even for very large price increases. Furthermore, the willingness to pay is practically uncorrelated with the cost side, and even less well-predicted by household characteristics, which makes it so that compensation optimally targeted at likely swing voters ends up creating only a few more expected winners than the simple equal rebates. As such targeting is also at a general tension with distributional objectives, the equal rebates may ultimately be the best compensation strategy for increasing the political feasibility of carbon pricing. Beyond compensation, influencing voter beliefs has a lot of potential given their predictive power, but may be difficult to do – for example, I find that an information treatment appealing to the economists’ consensus on carbon pricing does not significantly increase agreement with the necessity of higher fuel prices in achieving the climate target. If carbon pricing cannot be made politically viable, policy makers may turn to other instruments, many of which target places rather than people (e.g. transit investments and other urban infrastructure). In the third essay, my co-authors and I use the odometer-data together with a long, granular panel of individual residential locations to decompose the variation in people’s annual kilometers driven into the contributions of neighborhood effects and individual habits, finding the latter to explain around half while the former explains less than 1%. This suggests that place-based policies may have limited impact on driving in the short term. However, we also find that the neighborhoods people grew up in can explain more than 10% of the variation in the individual driving habits, suggesting much larger, persistent long-term effects.