This paper presents the results of an ex post evaluation of the impacts of a vehicle tax reform in Ireland. We carry out a full social cost benefit analysis of a vehicle tax reform that began in Ireland in 2008 and show that whilst successful in improving the fuel economy of new passenger cars, it may also have caused unintended effects, such as an increased proliferation of diesel vehicles in the passenger car fleet. These outcomes have mitigated the overall benefits. In addition to quantifying the scale of the various effects and outcomes, this paper clearly demonstrates the importance of broad scope policy design. On 1 July 2008, the passenger car taxation regime in the Republic of Ireland underwent a significant change. Both the Vehicle Registration Tax (VRT) and Annual Motor Tax (AMT) switched from being based on engine capacity to being based on a carbon dioxide (CO2) emissions ratings per kilometre. The motivating ambition for this change was to reduce CO2 emissions from passenger car use by aligning the carbon emissions externality with the vehicle taxation system, thereby making it more expensive to purchase and operate a vehicle with a higher CO2 per km rating. Following the change, there was an immediate shift in purchasing behaviour: diesel vehicles rose from a share of less than 30% of new car registrations prior to the change, to more than 80% of all new car registrations in the months after the tax reform. This paper estimates a range of social costs and benefits for this vehicle tax reform. Quantifying the effectiveness of such a policy change presents a number of challenges. Although the average emissions ratings of newly registered vehicles in Ireland have declined in recent years, this was certainly also influenced by other factors, such as the EU CO2 emissions regulation, rather than purely a change in consumer purchasing behaviour due to the policy shift. Using a difference-in-differences quasi-experimental design, we recreated the missing counterfactual scenario (in the absence of the policy change(s)) of vehicle purchasing patterns in Ireland using the trend in UK new passenger car emissions over the period and thereby estimated the change in CO2 emissions ratings and diesel share attributable to the tax reform. This estimate was then run through a vehicle fleet modelling simulation, based on COPERT, to analyse the fleet profile and emissions impacts, as well as the economic value of the same. The simulated fleet profile allows us to estimate a counterfactual for tax revenues and compare with actual receipts. Finally, we monetise all costs and benefits and estimate the net present value of the tax reform. The findings suggest that the initial policy change in 2008 reduced the fleet average CO2 emissions rating of newly registered passenger cars in Ireland by roughly between 8 to 11 gCO2/km. Some subsequent policy changes (such as the introduction of a scrappage scheme) have also been effective by stimulating the purchase of low-emitting vehicles. However, we find that this decrease in rated emissions is driven by a significant shift towards diesel-powered vehicles with resulting increases in other types of pollutants such as NOx, particulates and SOx emissions. Government revenue was also significantly reduced. This work highlights the potential for unintended trade-offs in policy outcomes in the absence of broad, careful ex-ante impact analysis. Improved policy design could have avoided some of these adverse impacts and we suggest some policy insights for better outcomes into the future. [ABSTRACT FROM AUTHOR]
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