Unintended consequences from nested state and federal regulations: The case of the Pavley greenhouse-gas-per-mile limits

Abstract

This paper reveals significant unintended consequences from recent 14-state efforts to reduce greenhouse gas emissions through limits on greenhouse gases per mile from new cars. We show that while such efforts significantly reduce emissions from new cars sold in the adopting states, they cause substantial emissions increases from new cars sold in other (non-adopting) states and from used cars. The costs per avoided ton of emissions are approximately twice as high once such offsets are recognized.Such offsets (or "leakage") reflect interactions between the state-level initiatives and the federal fuel-economy standard: the state-level efforts effectively loosen the national standard, giving automakers scope to profitably increase sales of high-emissions automobiles in non-adopting states. Although the state-level efforts spur invention of fuel- and emissions-saving technologies, interactions with the federal standard limit the nationwide emissions reductions from such advances.Our multi-period simulation model estimates that a recent state-federal agreement avoids what would have been 74% leakage in the first phase of the state-level effort, and that potential for 65% leakage remains for the second phase.This research confronts a general issue of policy significance-namely, problems from "nested" state and federal environmental regulations. Similar leakage difficulties would arise under several newly proposed state-level initiatives. © 2011 Elsevier Inc.