Friday, August 17, 2007

An Inefficient Form of Pollution Reduction

The Chinese government has recently announced an experimental plan to lower the amount of smog and pollution in its largest cities. In advance of the Olympics, it has instituted an odd-even license plate system in Beijing, whereby on certain days only cars with license plates ending in odd numbers will be allowed to drive, while on others, only cars with license plates ending in even numbers will be allowed to drive.

On the plus side, I applaud the Chinese government's efforts to tackle its massive air quality problem. Chinese growth has come at the significant cost of environmental degradation, and efforts to address this are good. If global warming and air quality problems are to be addressed, they will almost necessarily involve at least some reduction in the number of cars on the roads, at least given current emissions levels which cars generate.

However, this system is extremely economically inefficient. By arbitrarily prohibiting individuals from driving, this system randomly prevents people from driving, rather than targeting those who place the lowest value on driving. For some people, the inability to drive might prevent them from reaching their places of work or doing other necessary things. For others, driving might be more of a luxury.

Given this, it's significantly more efficient for the government to try to lower driving by imposing additional charges on driving, either in the form of gas taxes, or, if downtown air pollution is the primary concern, a congestion charge imposed specifically in certain areas. The same reductions can be made, but it can be done in a more efficient way.

(If driving distance could be taxed directly, an even more sophisticated and morally palatable solution might be to provide everyone with a certain number of kilometers of free driving, and then tax additional kilometers at an increasing marginal tax rate with respect to distance driven. Of course, this requires significantly more monitoring and enforcement capacity and entails substantial enforcement costs; thus, given current technology, it seems to be a rather implausible solution.)

In any event, this system of driving rationing is suboptimal. It's something which would have been expected to come out of pre-1978 China; it's not a 21st century environmental solution.

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