Working Paper: NBER ID: w15337
Authors: Lawrence H. Goulder; Mark R. Jacobsen; Arthur A. Van Benthem
Abstract: 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.\n\nSuch 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.\n\nThis 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.
Keywords: greenhouse gases; Pavley limits; emissions leakage; CAFE standards
JEL Codes: H23; H77; Q52; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Pavley limits (R48) | reduction in greenhouse gas emissions in adopting states (Q52) |
| Pavley limits + federal CAFE standards (R48) | emissions leakage in non-adopting states (Q52) |
| manufacturers shifting sales towards larger vehicles (L62) | emissions leakage in non-adopting states (Q52) |
| Pavley standards (R48) | technological advancements in fuel-saving technologies (Q55) |
| technological advancements (O33) | emissions reductions achieved nationwide (Q52) |
| Pavley regulations (R48) | increase in prices of new cars (E31) |
| increase in prices of new cars (E31) | consumers retain less fuel-efficient used cars longer (D15) |
| retaining less fuel-efficient used cars longer (L99) | overall emissions leakage (Q52) |