Congestion Tolls Efficiently Reduce CO2 Emissions from Homes in addition to Urban Transportation in the Long Run

Greenhouse gas emissions caused by urban residents' energy consumption arise from the 1) transportation and 2) housing sectors. This energy consumption depends on the population distribution of the city. This study quantitatively examines the effectiveness of congestion tolls, carbon tax, and land use regulations on the social welfare and the reduction of urban CO2 emissions. Results show that, among the three policies, the congestion toll can increase the social welfare by about 99% of the increase in the first-best scenario, which shows the best among the three policies, and can reduce the amount of total CO2 emissions by about 22%, which is almost the highest level among the three policies. These results suggest that congestion tolling, which is primarily the Pigovian tax for congestion, does not only internalize congestion externalities but also reduce CO2 emissions rather effectively through downsizing transportation distances and housing sizes with the spatial change in population density in the city.