Encouraging adoption of fuel-efficient vehicles – A policy reform evaluation from Ethiopia
Abstract
The extent of vehicle ownership is increasing in many developing countries. Most of the
increase takes place through import of second-hand vehicles that are usually fuel-inefficient
and have poor emissions standards. This is creating enormous environmental pressures,
since most developing countries also lack the necessary policies to regulate the sector. This
study investigates the effect of a recent policy reform in Ethiopia that aimed at encouraging
adoption of cleaner vehicles. In March 2020, Ethiopia introduced a new vehicle excise
tax that linked the excise tax rate to engine size and age of vehicles, imposing lower rates
on ‘fuel-efficient’ vehicles and higher rates on ‘fuel-inefficient’ ones. Exploiting the quasiexperimental
nature of the reform and employing a difference-in-differences design, the
study investigates the reform’s effect on vehicle ownership and composition of the vehicles,
and in reducing CO2 emissions. The results show that while the reform has no significant
effect on total vehicle ownership, it has a significant effect in increasing the adoption of newer
vehicles. We also find no significant increase in the adoption of smaller-engine vehicles. The
reformled to no significant reduction on CO2 emissions intensity of the vehicles. The reform,
however, significantly increased adoption of small-engine but new vehicles - relatively the
most ‘fuel-efficient’ alternatives. The results are robust to various robustness checks. The
study discusses the policy implications of the results, especially for developing countries.
Publisher
University of Gothenburg
Other description
JEL Classifications: H23, Q40, Q58
Collections
Date
2023-11Author
Tesemma, Tewodros
Editor
Keywords
transportation
environment
policy instrument
developing countries
Publication type
report
ISSN
1403-2465
Series/Report no.
Working Papers in Economics
838
Language
eng