Regulating Untaxable Externalities: Are Vehicle Air Pollution Standards Effective and Efficient?

This article evaluates the effectiveness and cost-efficiency of vehicle air pollution exhaust standards, which limit emissions per mile from new vehicles and are central to U.S. Clean Air Act transportation regulation. Using comprehensive data spanning over five decades, the study finds that U.S. new-vehicle emissions of key pollutants—carbon monoxide, hydrocarbons, and nitrogen oxides—have declined by over 99%, largely due to these standards. However, the standards are not cost-effective because they inadequately address emissions from older vehicles, which contribute the majority of pollution due to deteriorating emission controls and lower registration fees that favor older, dirtier vehicles. Analytical and quantitative models reveal that tightening exhaust standards can paradoxically extend the lifespan of used vehicles (the Gruenspecht effect), while increasing registration fees on older, more polluting vehicles can substantially improve social welfare by accelerating scrap rates. The study concludes that although exhaust standards have been remarkably effective, reforms targeting fleet composition and registration fees offer larger potential welfare gains and pollution reductions.