How does economic activity adapt to pollution pricing? Evidence from London’s ULEZ

Abstract

Policymakers around the world are exploring ways to tackle greenhouse gas emissions, but when evaluation focuses on narrow margins, policies can have unintended consequences. We exploit the phased introduction of London’s Ultra-Low Emissions Zone (ULEZ) and a shift-share event study design to study how the ULEZ changes economic activity along all major margins. The phased introduction of the ULEZ affects who can drive into particular areas of London without paying a fee, affecting commuter-belt postcodes heterogeneously based on pre-existing economic choices. Affected individuals can react by purchasing ULEZ-compliant vehicles, switching to public transport, working from home, or changing the location of their home or employer. We estimate elasticities on all these margins. In preliminary work, we show that the initial introduction of the ULEZ had large, significant positive effects on the adoption of ultra-low emissions vehicles.

Joel Kariel

Econometrics Adviser

My research interests include firm dynamics, productivity, technological change, market power, applied econometrics.