USING INSPECTION AND MAINTENANCE PROGRAMS TO REGULATE VEHICLE EMISSIONS

I. INTRODUCTION During the past 20 years, states have established vehicle inspection and maintenance (I&M) programs to reduce the hydrocarbon (HC), carbon monoxide (CO), and nitrogen oxide (NOx) emissions of their vehicle fleets, thereby improving ambient air quality. Policymakers hoped that such programs would provide incentives for drivers to maintain their vehicles' emission condition better than they otherwise would. Policymakers also hoped such programs would effect environmental improvements in a less costly manner than would additional stationary source controls or more stringent standards for new cars and light trucks. But by the late 1980s, I&M programs generally were failing to induce drivers to better maintain their vehicles' emission condition and, at best, the programs were responsible for small improvements in air quality. Concern that existing programs were not achieving their environmental goals led Congress to mandate changes in many states' programs in the Clean Air Act Amendments of 1990 (1990 CAAA). Ever since then a major environmental and regulatory policy debate has focused on the issue of how best to design I&M programs. This paper investigates the research question: Given that the law requires states to implement I&M programs, how should such programs be designed? Combining an analysis of incentives within inspection and repair markets with existing empirical evidence yields the following conclusions. Existing programs provide consumers incentives to maintain their vehicles so as to pass periodically scheduled emission inspections. This leads consumers to fulfill I&M requirements without improving their vehicles' in-use emission condition. Changing programs so that more sophisticated measurement techniques are used in scheduled inspections may lead to more repairs that would improve vehicles' in-use condition. However, doing so is costly and does not improve consumers' maintenance decisions on days other than when they know these inspections will occur. Changing programs so as to include non-scheduled inspections and imposing non-repair-related costs on consumers who drive high-emitting vehicles may provide consumers more direct and consistent incentives to maintain their vehicles' in-use emission condition. Implementing a program with these features may be both operationally and politically difficult. Remote sensing - using devices that identify vehicles and measure their emissions as they pass along a road - is a promising means for introducing non-scheduled inspections at low cost. II. REGULATING VEHICLE EMISSIONS WITH I&M PROGRAMS Vehicle emissions create an externality because drivers do not account for the environmental degradation they impose on others. Absent regulation or a market for pollution rights, this implies that their decisions with respect to vehicle purchases, use, and maintenance will be inefficient. Considering emissions as a productive input to transportation, policymakers can introduce regulation aimed at giving drivers incentives to make more efficient use of this input. The efficient level of pollution is where the marginal social benefit derived from an additional unit of pollution equals its marginal social cost. In practice, the marginal costs and benefits of pollution, and thus the optimal level of emissions, are all but impossible to determine. Consequently, policymakers usually set air quality standards or emission reduction targets. While these quantities may approximate socially optimal levels, political objectives may guide them. The economic objective then becomes how to achieve the policy goal at least cost. This is the case for the 1990 CAAA, which set targets for reducing HC, CO, and NOx emissions. Regulating vehicle emissions may facilitate attaining these environmental goals at a lower cost because reducing vehicle emissions may be less costly than reducing emissions from other sources. Policymakers must decide whether to regulate vehicle emissions and if so, how. …