Policy Diffusion of Auto Emission Standards - Is there a Race to the Top? - October 27, 2009 Eri Saikawa Science, Technology & Environmental Policy Program Woodrow Wilson School of Public & International Affairs Princeton University

1 st Adoption of Comprehensive Emission Standards US Japan Europe Mexico China India QuestionMethodologyAnalysis 1Analysis 2Conclusion Bangladesh

Dissertation Question Policy Diffusion of Auto Emission Standards Why does diffusion occur? What is the impact? 1.Mechanisms of Policy Diffusion Analyze mechanisms of diffusion and impact of adoption on automobile exportsAnalyze mechanisms of diffusion and impact of adoption on automobile exports 2.Impact on Air Quality, Health & Climate Impact of Chinas pollutionImpact of Chinas pollution MethodologyConclusionQuestionAnalysis 1Analysis 2

Impact of Chinas Aerosols on Global Surface Concentrations in 2000 SO 4 2- OC BC [µg m-3] Saikawa, et al. Present and potential future contributions of sulfate, black and organic carbon aerosols from China to global air quality, premature mortality and radiative forcing Atmospheric Environment 43 (2009) MethodologyConclusionQuestionAnalysis 1Analysis 2

Impact of Chinas Aerosols on Global Premature Mortality in 2000 China474,250 Korea & Japan 11,280 Southeast Asia 10,270 South Asia 830 North America 320 Rest of the World 690 Saikawa, et al. Present and potential future contributions of sulfate, black and organic carbon aerosols from China to global air quality, premature mortality and radiative forcing Atmospheric Environment 43 (2009) MethodologyAnalysis 1Analysis 2ConclusionQuestion

Dissertation Question Policy Diffusion of Auto Emission Standards Why does diffusion occur? What is the impact? 1.Mechanisms of Policy Diffusion Analyze mechanisms of diffusion and impact of adoption on automobile exportsAnalyze mechanisms of diffusion and impact of adoption on automobile exports 2.Impact on Air Quality, Health & Climate Impact of Chinas pollutionImpact of Chinas pollution Scenario analyses of Chinas adoptionScenario analyses of Chinas adoption 3.Chinas Policymaking Process Impact of domestic politics on standards adoptionImpact of domestic politics on standards adoption MethodologyConclusionQuestionAnalysis 1Analysis 2

Questions & Arguments Why did emission standards diffuse? Why did emission standards diffuse? What happens after adoption? What happens after adoption? Countries adopted standards to enhance the competitiveness of their auto industries. Except for low-income countries, automobile exports increase. QuestionMethodologyConclusionAnalysis 1Analysis 2

Mechanisms of Diffusion 4 major mechanisms in the Policy Diffusion literature: 4 major mechanisms in the Policy Diffusion literature: CompetitivenessCompetitiveness International PressureInternational Pressure Normative EmulationNormative Emulation LearningLearning The California Effect (Vogel, 1997) The California Effect (Vogel, 1997) QuestionMethodologyConclusionAnalysis 1Analysis 2

Competitiveness Mechanism The California Effect The California Effect Exporting countries adopt emission standards when major importing countries adopt standards Competitor Effect Competitor Effect Exporting countries adopt emission standards when competing exporting countries adopt standards QuestionMethodologyConclusionAnalysis 1Analysis 2

My Contribution Extend competitiveness mechanism to environmental standards Extend competitiveness mechanism to environmental standards Expand the California Effect theory to include developing countries Expand the California Effect theory to include developing countries Empirical testing Empirical testing QuestionMethodologyConclusionAnalysis 1Analysis 2

Methodology Analysis 1. Event History Analysis Analysis 1. Event History Analysis Identify mechanisms of policy diffusion Identify mechanisms of policy diffusion Analysis 2. Gravity Model of Trade Analysis 2. Gravity Model of Trade Assess impact of policy diffusion on competitive advantage in trade Assess impact of policy diffusion on competitive advantage in trade QuestionMethodologyConclusionAnalysis 1Analysis 2

Dependent Variable Created a database of the years that countries first adopted auto emission standards Created a database of the years that countries first adopted auto emission standards Dichotomous coding Dichotomous coding Code 0 – without adoptionCode 0 – without adoption Code 1 – with adoptionCode 1 – with adoption QuestionMethodology Analysis 1 ConclusionAnalysis 2

Independent Variables Competitiveness: Competitiveness: The California effect – Share of auto exports to countries with standardsThe California effect – Share of auto exports to countries with standards Competitor effect – Trade similarityCompetitor effect – Trade similarity Competitor effect – Auto exports as share of GDPCompetitor effect – Auto exports as share of GDP QuestionMethodologyConclusion Analysis 1 Analysis 2

Independent Variables International Pressure: International Pressure: ODA & Official Aid as share of GDPODA & Official Aid as share of GDP Normative Emulation: Normative Emulation: Number of countries that have adopted standardsNumber of countries that have adopted standards Learning: Learning: Number of environmental IGOs of which a country is a memberNumber of environmental IGOs of which a country is a member QuestionMethodologyConclusion Analysis 1 Analysis 2

Control Variables Real GDP per capita Real GDP per capita EU membership EU membership CO 2 emissions from transport sector (proxy for tail-pipe emissions) CO 2 emissions from transport sector (proxy for tail-pipe emissions) QuestionMethodologyConclusion Analysis 1 Analysis 2

Standards Adoption Tested using logit function Tested using logit function Analyzed all countries 1975 – 2000 Analyzed all countries 1975 – 2000 Cluster by country Cluster by country Include year dummies Include year dummies QuestionMethodologyConclusion Analysis 1 Analysis 2

Methodology Analysis 1 Analysis 2ConclusionQuestion

Interpretations Competitiveness appears to be the major factor for standards adoption Competitiveness appears to be the major factor for standards adoption High-income countries High-income countries California effect & Competitor effectCalifornia effect & Competitor effect Developing countries Developing countries Upper-middle: California effectUpper-middle: California effect Lower-middle & Low: Competitor effectLower-middle & Low: Competitor effect QuestionMethodologyConclusion Analysis 1 Analysis 2

Qualitative Evidence 78 interviews in China and Japan 78 interviews in China and Japan Managers in the automobile industry (Honda, Toyota, Hyundai, GM, VW, Geely)Managers in the automobile industry (Honda, Toyota, Hyundai, GM, VW, Geely) Government officials (national and local)Government officials (national and local) Researchers at national institutions, think tanks, and universitiesResearchers at national institutions, think tanks, and universities QuestionMethodologyConclusion Analysis 1 Analysis 2

Qualitative Evidence Main findings Main findings Japanese government pushed automobile industry to develop technologiesJapanese government pushed automobile industry to develop technologies Japanese auto industry opposed adoption of standardsJapanese auto industry opposed adoption of standards Chinese government adopted the standards to reduce air pollution and to increase auto industry competitivenessChinese government adopted the standards to reduce air pollution and to increase auto industry competitiveness Foreign-venture automobile firms in China lobbied Beijing to adopt European standardsForeign-venture automobile firms in China lobbied Beijing to adopt European standards Difficult for local automobile industry to meet the requirementsDifficult for local automobile industry to meet the requirements QuestionMethodologyConclusion Analysis 1 Analysis 2

Emission Standards Adoption MethodologyAnalysis 1 Analysis 2 ConclusionQuestion

Emission Standards Adoption MethodologyConclusionQuestionAnalysis 1 Analysis 2

Emission Standards Adoption MethodologyConclusionQuestionAnalysis 1 Analysis 2

Emission Standards Adoption MethodologyConclusionQuestionAnalysis 1 Analysis 2

Impact of Standards on Exports Gravity Model of trade Standard framework to assess the effects of bilateral trade Standard framework to assess the effects of bilateral trade Estimates the impacts of emission standards on automobile exports Estimates the impacts of emission standards on automobile exports MethodologyAnalysis 1 Analysis 2 ConclusionQuestion

4 variables to consider: 4 variables to consider: Std it : exporters adoption of standardsStd it : exporters adoption of standards Std jt : importers adoption of standardsStd jt : importers adoption of standards Both t : both exporter/importer adopting standardsBoth t : both exporter/importer adopting standards ln(Std t ) : log of number of countries with standardsln(Std t ) : log of number of countries with standards Impact of Standards on Exports MethodologyConclusionQuestionAnalysis 1 Analysis 2

MethodologyAnalysis 1 Analysis 2 ConclusionQuestion

MethodologyConclusionQuestionAnalysis 1 Analysis 2

Interpretation Adoption of emission standards Adoption of emission standards except for low-income countries, positive effects on auto exports except for low-income countries, positive effects on auto exports Adoption of emission standards gives countries a competitive advantage Adoption of emission standards gives countries a competitive advantage MethodologyConclusionQuestionAnalysis 1 Analysis 2

Conclusion Competitiveness is the major mechanism Competitiveness is the major mechanism Market incentives lead to more stringent environmental standards Market incentives lead to more stringent environmental standards Stringent emission standards better environment, less premature mortality and more auto exports Stringent emission standards better environment, less premature mortality and more auto exports MethodologyModel 1Model 2ConclusionQuestion

Policy Implications Other environmentally friendly products may also create competitive advantage Other environmentally friendly products may also create competitive advantage Policy diffusion may apply to…. Policy diffusion may apply to…. Product Standards for AppliancesProduct Standards for Appliances Energy Efficiency StandardsEnergy Efficiency Standards Developed countries can influence developing countries behavior Developed countries can influence developing countries behavior MethodologyModel 1Model 2ConclusionQuestion