Regulating Untaxable Externalities: Are Vehicle Air Pollution Standards Effective and Efficient?

This research studies how environmental policy that is different from a tax on pollution affects the environment and well-being. The project will focus on the extent to which exhaust standards for new vehicles, which limit the emissions rate per mile for different local air pollutants, have been effective at reducing air pollution from the U.S. vehicle fleet. Using a range of data, including tens of millions of pollution test readings for individual new and used vehicles, the project first shows that air pollution emissions from light-duty vehicles have fallen by more than 99 percent since the 1960s. The project will quantify the extent to which exhaust standards have caused these reductions, and study how a vehicle’s emissions increase as it ages. Finally, the research will build analytical and quantitative models of the U.S. new and used vehicle fleets to study how changes in new-vehicle emissions standards and feasible alternative policies affect the well-being of society.

The broader objective of this project is to advance knowledge on the effectiveness and efficiency of environmental policies for transportation. Microdata compiled for this project show that for the major types of regulated air pollutants, exhaust emissions per vehicle mile traveled in the U.S. new vehicle fleet have fallen by more than 99 percent since regulation began in the 1960s. Regressions exploit changes in new vehicle emissions standards across years, vehicle classes, and pollutants to assess what share of that 99 percent decrease exhaust standards have caused. The preliminary analysis documents several facts which together suggest that existing standards have not been cost-effective: (1) age and mileage explain large differences in emissions rates; (2) a small share of vehicles account for most pollution; (3) policies based on age and other vehicle attributes improve welfare more than exhaust standards do; and (4) existing registration fees and property taxes are higher on cleaner vehicles. The analysis also shows that these facts are not true for fuel economy and CO2 emissions, which have been the focus of much research. The research builds analytical and quantitative models of the vehicle fleet to study feasible counterfactual policies that can complement standards.