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Property Rights in the Transport Industry. The Implementation of Tradable Fuel Permits

 Evy Crals en Lode Vereeck (2003a)

Pollution and congestion are generally considered the blatant symptoms of an unsustainable economic and transport system. Over the past decades, the steadily growing use of the road transport system is causing major negative externalities. Moreover, with a 20% share, road transport is one of the main energy-consuming industries in the E.U. Therefore, transport and environmental economists are developing more sustainable transport systems. So far, their main focus is on pricing mechanisms: road and congestion pricing, variable taxation and tolls. These traditional policy measures, such as road pricing, are not only ineffective (congestion is not to disappear due to demand inelasticity) and inefficient (road tolls reflect construction and tolling costs, not market prices) but also unjust because they deprive poor people of their right of free movement. The uneasy tension between efficiency and effectiveness on the one hand and sustainability and justice on the other can be resolved by a tradable permit system that meets economic, ecological, and social demands. Little attention is paid to rationing road transport use by ticketing or the distribution of permits, in other words quantity-based instruments. In particular, opponents of the permit system argue that the administrative and transaction costs of such a system are prohibitively high. However, since the introduction of Intelligent Transport Systems (ITS) – which are also used in pricing systems – the design of an efficient permit system is becoming more feasible. This paper suggests the design of a highly innovative tradable fuel permit (TFP) system based on the academic theory of emission rights. The following aspects will be discussed: geographical distribution, target group, allocation aspects, cap and trade, monitoring & enforcement, implementation path and used technology. There are many different reasons why permit systems, such as the TFP system, are particularly promising for regulating the transport market. Firstly, the permit system is, by nature, highly effective in realising a fixed objective since it is possible to set precise and measurable targets. Once the cap is set, supply is limited and this limit is absolute (disregarding fraud, of course). It follows that the quantitative objective will always be realised. In a system of fuel taxes or road pricing, however, the amount of vehicles kilometres is determined ex post. Consumption and production may well exceed the optimum amount due to the price-inelasticity of demand. Secondly, the system allows a fair social redistribution of means. Thirdly, since road users are more sensitive to quantitative signals than to price signals, an efficient road transport market can be set up. This article aims to learn from both theory and practice how a system of tradable rights could operate. Therefore, an analysis of available literature concerning emission rights is conducted. In addition, the emission trading models of the 1990 Clean Air Act Amendments and of the California RECLAIM program are used as a guideline for the design of the TFP system.

Proceedings Hawaii International Conference on Social Sciences, 28 pag. ISSN 1539-7300

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