James Sallee “Retiring Old Capital to Foster Decarbonization” (August 2023) | WP-339

A majority of anthropogenic greenhouse gas emissions come from fossil fuel combustion. Combustion nearly always involves some form of durable capital, which includes vehicles, appliances and power generators. Many policies aim to improve environmental outcomes by regulating the efficiency or emissions of this capital. Most such policies focus on new capital. This paper discusses the importance of policies that target used capital as a complement to such regulations. In particular, the paper argues that used capital policies that are designed to accelerate retirement of used capital, either by taxing its use or subsidizing its scrappage, can have efficiency benefits by addressing unintended consequences of policies that target new capital. The paper also argues that retirement subsidies are likely to be a relatively progressive policy instrument, as compared to alternatives. Policymakers should understand the role that such policies might play in fostering equitable decarbonization of the economy.