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V. SUMMARY AND CONCLUSIONS

Emissions from gross emitters are significant contributors to a problem that has many sources, and major consequences. Many regions are unable to comply with the existing standards, and the President recently approved tighter standards the EPA says will produce $120 Billion in health benefits (November 29, 1996 Wall Street Journal). How the affected regions try to comply with (or alter through the political process) ambient air quality standards, will make a big difference in their economic future.

Strengthened maintenance incentives, and accelerated clunker retirement, are indispensable parts of a policy that targets emissions of mobile sources. Many of the policy alternatives, including clunker purchase and a VEF, are most appropriate as explicitly interim policies until technologies improve to facilitate a change to a better approach.

Even if EMVRs are only sporadically-used, interim tools, important questions remain. Since the fleet average is probably an over-estimate of the replacement car's emissions, can we improve upon it? How can we move quickly to an emissions model basis for MERC creation and price estimates? What environmental bonuses, attrition rates, and methods of computing remaining life are appropriate in each region? What is the best time dimension for MERCs? Time dimensions like months or years that imply some credit leveling (banking and borrowing of credit) best serve long-term uses. Short term uses (like to cover delays in pollution control hardware installation or maintenance downtimes or short-term production increases) are best served by a narrower definition (days or hours), because then MERC buyers can better match their MERC purchases to their emission fluctuations.

Finally, there is the sticky issue of subsidy. Clunker retirement generates external benefits like increased highway safety, reduced traffic, and reduced emissions of pollutants already below legal limits. Are they large enough to demand explicit government subsidy beyond taxpayer-funded oversight and modeling services, and periodic car dealer incentives like lower interest financing and direct discounts?

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