Unintended Consequences from Nested State & Federal Regulations: The Case of the Pavley Greenhouse-Gas-per-Mile Limits
Fourteen U.S. states recently pledged to adopt limits on greenhouse gases (GHGs) per mile of light-duty automobiles. Previous analyses predicted this action would significantly reduce emissions from new cars in these states, but ignored possible offsetting emissions increases from policy-induced adjustments in new car markets in other (non-adopting) states and in the used car market.
Such offsets (or "leakage") reflect the fact that the state-level effort interacts with the national corporate average fuel economy (CAFE) standard: the state-level initiative effectively loosens the national standard and gives automakers scope to profitably increase sales of high-emissions automobiles in non-adopting states. In addition, although the state-level effort may well spur the invention of fuel- and emissions-saving technologies, interactions with the federal CAFE standard limit the nationwide emissions reductions from such advances. Using a multi-period numerical simulation model, we find that 70-80 percent of the emissions reductions from new cars in adopting states are offset by emissions leakage.
This research examines a particular instance of a general issue of policy significance - namely, problems from "nested" federal and state environmental regulations. Such nesting implies that similar leakage difficulties are likely to arise under several newly proposed state-level initiatives.
We are grateful for helpful comments from Steven Albu, Soren Anderson, Kenneth Gillingham, Paul Hughes, James Sallee, Eileen Tutt, Catherine Wolfram, and participants at seminars and workshops at Harvard University, MIT, the University of British Columbia, the University of California at Riverside, Stanford University, the Summer Workshop of the Association of Environmental and Resource Economists, and the NBER Summer Institute. We also thank the Precourt Energy Efficiency Center at Stanford University for financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
“Unintended Consequences from Nested State & Federal Environmental Regulation: The Case of the Pavley Greenhouse-Gas-per-Mile Limits” (with Mark R. Jacobsen and Arthur A. van Benthem), Journal of Environmental Economics and Management 63:187-207, March 2012.