Are Policymakers Accounting For All The Benefits Of Climate Policies? No, Says One Study

Climate policies are typically evaluated based on their domestic benefits. But a new study demonstrates how policies, such as ones that require products to be more fuel efficient, may be quietly improving those products worldwide without receiving any credit for the global emissions reductions as a result.

“When it comes to addressing climate change, many believe only the actions of the greatest emitters really matter,” says study co-author Koichiro Ito, a professor at the University of Chicago Harris School of Public Policy. “But our study shows that products are part of global markets, and the actions of any single country influence emissions coming from many other countries. The multiplying effect can be very significant.”

Ito and his co-authors—James Sallee from the University of California, Berkeley, and Andrew Smith from the University of Wisconsin-Madison—use a fuel efficiency policy in Japan to study this question. Japan’s 2009 fuel-economy subsidy gave consumers a rebate of up to $1,500 when purchasing a car that exceeded the government’s fuel efficiency target. This created a strong incentive for auto companies to improve the fuel efficiency of models sold in Japan. But did those improvements extend to car models sold in the United States?

The study found that in fact it did. It was easier for automakers to sell some of the same cars in Japan and the U.S. As a result, the subsidy in Japan led to a 25 percent improvement in the fuel efficiency of cars sold in Japan, and about an 8 percent improvement in the fuel efficiency of affected cars sold in the U.S., even though American consumers didn’t get the subsidy.

Because the American car market is significantly larger and Americans drive more, the impact of these more efficient cars in the U.S. was much larger than the impact in Japan. The Japanese subsidy reduced carbon by 0.75 megatons per year domestically and by 2.27 megatons per year in the U.S., meaning roughly three-quarters of the policy’s total climate benefit occurred outside Japan’s borders. Put another way, the combined carbon reduction in Japan and the U.S. was four times larger than the carbon reduction in Japan alone.

“Accounting for these types of improvements in products that are sold abroad could fundamentally change how policymakers judge the benefits of climate regulations, as well as other types of regulations impacted by global product markets,” Ito says.

Originally published by Energy Policy Institute at the University of Chicago (EPIC)