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Unintended Consequences from Nested State & Federal Regulations: The Case of the Pavley Greenhouse-Gas-per-Mile Limits

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  • Lawrence H. Goulder
  • Mark R. Jacobsen
  • Arthur A. van Benthem
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    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. 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.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15337.

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    Date of creation: Sep 2009
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    Publication status: published as “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.
    Handle: RePEc:nbr:nberwo:15337

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    References

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    1. Meredith Fowlie, 2008. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," NBER Working Papers 14421, National Bureau of Economic Research, Inc.
    2. Kenneth A. Small & Kurt Van Dender, 2007. "Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 25-52.
    3. Soren T. Anderson & James M. Sallee, 2009. "Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," Working Papers 0901, Harris School of Public Policy Studies, University of Chicago.
    4. Thomas H. Klier & Joshua Linn, 2008. "New vehicle characteristics and the cost of the corporate average fuel economy standard," Working Paper Series WP-08-13, Federal Reserve Bank of Chicago.
    5. Davis, Lucas, 2009. "International Trade in Used Vehicles: The Environmental Consequences of NAFTA," Department of Economics, Working Paper Series qt98j8m3r6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    6. Bento, Antonio M. & Goulder, Lawrence H. & Jacobsen, Mark R. & von Haefen, Roger H., 2007. "Distributional and Efficiency Impacts of Increased U.S. Gasoline Taxes," Working Papers 127021, Cornell University, Department of Applied Economics and Management.
    7. Harrington, Winston & McConnell, Virginia & Alberini, Anna, 1998. "Fleet Turnover and Old Car Scrap Policies," Discussion Papers dp-98-23, Resources For the Future.
    8. Christopher R. Knittel, 2011. "Automobiles on Steroids: Product Attribute Trade-Offs and Technological Progress in the Automobile Sector," American Economic Review, American Economic Association, vol. 101(7), pages 3368-99, December.
    9. Barker, Terry & Junankar, Sudhir & Pollitt, Hector & Summerton, Philip, 2007. "Carbon leakage from unilateral Environmental Tax Reforms in Europe, 1995-2005," Energy Policy, Elsevier, vol. 35(12), pages 6281-6292, December.
    10. Robert W. Hahn, 1995. "An Economic Analysis of Scrappage," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 222-242, Summer.
    11. Bushnell, James & Peterman, Carla & Wolfram, Catherine, 2008. "Local Solutions to Global Problems: Climate Change Policies and Regulatory Jurisdiction," Staff General Research Papers 13125, Iowa State University, Department of Economics.
    12. Lucas W. Davis & Matthew E. Kahn, 2009. "International Trade in Used Vehicles: The Environmental Consequences of NAFTA," Working Papers 584, Research Seminar in International Economics, University of Michigan.
    13. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
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    Cited by:
    1. Williams, Roberton C., 2012. "Growing state–federal conflicts in environmental policy: The role of market-based regulation," Journal of Public Economics, Elsevier, vol. 96(11), pages 1092-1099.
    2. Klier, Thomas & Linn, Joshua, 2011. "Fuel Prices and New Vehicle Fuel Economy in Europe," Discussion Papers dp-11-37, Resources For the Future.
    3. repec:reg:wpaper:619 is not listed on IDEAS
    4. James Sallee, 2010. "The Taxation of Fuel Economy," NBER Working Papers 16466, National Bureau of Economic Research, Inc.

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