The Economics of Low Emission Zones

Abstract

This paper develops a methodology for assessing costs and benefits of Low Emission Zone (LEZ), and use data for an empirical estimate of the magnitude of the effects. We apply the methodology to Stockholm, providing a unique opportunity of assessing these costs due to the micro data available from the congestion charging system, in terms of visiting frequencies to the inner city by vehicles type and age, and the driver’s adaptations cost of refraining to go by car to the inner city (observed when the congestion charging levels were increased). Our key result is that costs (higher driving costs and carbon emissions due to impacts on the sales of new cars, and adaptation cost for existing diesel car owners) are approximately twice as high as the benefits (reduced air pollution and higher fuel tax revenues for governments revenue due to impacts on the sales of new cars). However, a LEZ for heavy trucks has the same benefit in terms of lower NOx exposure but much lower adaptation and environmental costs. A LEZ has a negligible effect on congestion.