To reduce the use of vehicles, taxation is immensely more effective than regulation. Many drivers bought a second car to circumvent the regulation, and the added cars pushed up their costs. And with more cars in the city, many of them older, there are indications that the regulation ended up increasing pollution rather than reducing it. This perverse outcome shows that understanding the effects of regulations and all other incentives is crucial for sound policymaking. Bank economist Gunnar Eskeland proposes an approach for moving closer to that understanding.
Buses emit less than half as many pollutants per passenger-kilometer.
Shifting passengers to forms of transport that pollute less per passenger-kilometer. Reducing overall travel. Theory recommends a pollution tax, since it would allow consumers to choose the option that would cost them the least. But the emission monitoring needed for such a tax is costly and unwieldy. The practical solution is a mix of taxes, incentives, and regulations.