A Note on Potential Perverse Effects of Vehicle Carbon Taxation

Employing a unique approach to household utility maximization, this paper explores the implications of vehicle carbon taxation and subsidies in the context of household choice for urban transportation mode where there exist two private characteristics of travel: comfort and time efficiency, and a third public negative characteristic, carbon emissions. Two policies to reduce carbon emissions are examined in this framework; (1) subsidizing public transportation and imposing a tax on vehicle emissions, (2) increasing the cost of private vehicle travel, and providing a rebate of the tax collected to the consumer. The results suggest that the latter policy may have little impact on carbon emissions and could possibly lead to an increase in emissions.