This study reviews regulatory instruments designed to reduce environmental externalities from the
transport sector. We find that the main regulatory instruments used in practice are fuel economy
standards, vehicle emission standards and fuel quality standards. While industrialized countries have
introduced all three standards with strong enforcement mechanisms, most developing countries have yet
to introduce fuel economy standards. The emission standards introduced by many developing countries to
control local air pollutants follow either the EU or U.S. standards. Fuel quality standards, particularly for
gasoline and diesel, have been introduced in many countries mandating 2 to 10 percents blending of
biofuels, 10 to 50 times reduction of sulfur from 1996 levels and banning lead contents. Although
inspection and maintenance (I/M) programs are in place in both industrialized and developing countries to
enforce regulatory standards, these programs have faced several challenges in developing countries due to
a lack of resources. The study also highlights several factors affecting the selection of regulatory
instruments, such as countries’ environmental priorities and institutional capacities.
