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

Abstract:     
Fourteen U.S. states recently pledged to adopt limits on automobile greenhouse gases (GHGs) per mile in an effort to reduce GHG emissions. We show that, because of interactions between this effort and the federal CAFE standard, 70-80 percent of the emissions reductions from new cars in adopting states will be offset because of policy-induced adjustments in new car markets elsewhere and in used car markets. Interactions with the CAFE standard also compromise the state-level effort’s ability to reduce emissions through induced technological progress. These substantial emissions-offsets reflect the nesting of state-federal regulations and would likely arise under several newly-proposed state initiatives.

Keywords: environmental regulation, climate change policy, state-federal interactions; emissions leakage, CAFE standards, greenhouse gas limits, automobile emissions limits, nested regulation

JEL Classification: Q52, Q54, Q58, H77

working papers series