A Strong Signal on Global Warming

President Barack Obama directed the Environmental Protection Agency to consider a request by California and thirteen other states to adopt tough auto emissions and fuel efficiency standards. His order today was a reversal of the Bush administration's refusal to give California a waiver to adopt its own global warming policy that would set more stringent environmental standards than those required by federal law. The New York Times' Room for Debate blog asked several experts for some background and their views on the decision.

Senior Fellow
Robert W. Hahn
President Obama is off to a fast start in dealing with energy and environmental regulation. Today, he asked the E.P.A. to reconsider whether California and several other states should be allowed to place strict limits on greenhouse gas emissions from cars and trucks. In addition, he asked the Transportation Department to develop more stringent fuel-economy standards for cars and light trucks.

The president deserves praise for showing he's very serious about addressing energy security and climate change issues. However, as I'm guessing his economic advisers have made clear, fuel economy standards--as opposed to taxes on fuel--are problematic.

For one thing, their imposition leads to a peculiar outcome in which cars are relatively cheap to use (because gas is relatively cheap), but more expensive to buy (because the technology needed to meet the standard isn't free). So, people drive their new cars more than they otherwise might, and thus pollute more.

Furthermore, fuel standards encourage people to hold on to their older, higher-polluting vehicles longer than they would otherwise. That's why other policy makers at other times have proposed "cash for clunkers" programs that encourage the early retirement of gas guzzlers. From a purely economic perspective, then, it would be much better to tax the "bad"--in this case the carbon in the fuel--and let the market figure out what cars people drive and how much they drive them.

The president's decision to revisit the question of whether individual states should be allowed to go their own way on fuel economy standards raises another important issue. Balkanizing these regulations would likely raise the cost of producing vehicles. In the extreme, imagine if Toyota had to produce Camrys tailored to the demands of each of 50 states.

Addressing climate change will eventually require a comprehensive solution involving the U.S. and most other countries. It's not clear that President Obama's initiatives get us much closer to the goal, but at least it shows he's trying.

Robert W. Hahn is a senior fellow at AEI.

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