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IV. POLICY RECOMMENDATIONS

Because of the possible effects of perverse incentives, and the uncertain supply of gross emitters not worth repairing, formal EMVR efforts should be sporadic on an interim basis until new metering technologies allow the use of tradable discharge permits for cars. To maximize cost effectiveness during that interim period of EMVR use, there should be more allowable uses of MERCs, and the prices paid for clunkers ought to vary at least according to the estimated remaining life of the car, and when feasible, according to modeled, not measured emissions. Government-paid mechanics ought to compute the number of remaining miles. That would avoid moral hazard problems, such as deferred maintenance or tampering by owners or brokers, while still keeping brokers' incentives to seek out the dirtiest car types. It also cuts costly emission testing; maybe to zero if simulations can provide enough reliable data to create a Green Book basis (Emerson and McCanlies 1992) of the prices. Linking estimated remaining life and price minimizes selection bias, and increases maintenance incentives. The size of the MERC, and its expiration date, should vary with an annual mileage estimate based on the most recent bill of sale or I&M record. The unpriced benefits of clunker retirement call for reduced conservatism in MERC creation and longevity policies. An EMVR participant that registers a car outside the target region during the projected life of the retired clunker should pay a registration surcharge equal to a pro rata share of the price paid for the clunker. The surcharge revenues are available to replace the expected emission reductions.

Highway congestion fees, and vehicle emission fees (VEFs) are better interim policies. A mixture of random, and skillfully placed, remote sensors would keep a VEF policy from creating uncertainties and perverse incentives like those of an EMVR, or some existing I&M programs. Some well-advertised remote sensor deployments could help discourage the use of high-emitting vehicles at the most damaging times and places. A VEF policy targets actual, rather than hypothetical, emissions. The cost-effective technology necessary to support the ideal, long-term salable permit policy that includes vehicles will develop more quickly if the fee policy is explicitly interim.

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