Policy Diffusion of Policy Diffusion of Auto Emission StandardsAuto Emission Standards- Is there a Race to the Top? -- Is there a Race to the Top? -

October 27, 2009October 27, 2009

Eri SaikawaEri Saikawa

Science, Technology & Environmental Policy ProgramScience, Technology & Environmental Policy ProgramWoodrow Wilson School of Public & International AffairsWoodrow Wilson School of Public & International Affairs

Princeton UniversityPrinceton University

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11stst Adoption of Comprehensive Adoption of Comprehensive Emission StandardsEmission Standards

USJapan

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ChinaIndia

QuestionQuestion Methodology Analysis 1 Analysis 2 Conclusion

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Dissertation QuestionDissertation QuestionPolicy Diffusion of Auto Emission StandardsPolicy Diffusion of Auto Emission Standards

Why does diffusion occur? What is the impact?Why does diffusion occur? What is the impact?

1.1. Mechanisms of Policy DiffusionMechanisms of Policy Diffusion• Analyze mechanisms of diffusion and impact of Analyze mechanisms of diffusion and impact of

adoption on automobile exports adoption on automobile exports

2.2. Impact on Air Quality, Health & ClimateImpact on Air Quality, Health & Climate• Impact of China’s pollutionImpact of China’s pollution

Methodology ConclusionQuestionQuestion Analysis 1 Analysis 2

Impact of China’s Impact of China’s Aerosols on Global Aerosols on Global

Surface Surface Concentrations Concentrations

in 2000in 2000

SOSO442-2-

OCOC BCBC [µg m-3][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) 2814-2822.

Methodology ConclusionQuestionQuestion Analysis 1 Analysis 2

Impact of China’s Aerosols on Impact of China’s Aerosols on Global Premature Mortality in 2000Global Premature Mortality in 2000

ChinaChina 474,250474,250

Korea & JapanKorea & Japan 11,28011,280

Southeast AsiaSoutheast Asia 10,27010,270

South AsiaSouth Asia 830830

North AmericaNorth America 320320

Rest of the WorldRest of the World 690690

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) 2814-2822.

Methodology Analysis 1 Analysis 2 ConclusionQuestionQuestion

Dissertation QuestionDissertation QuestionPolicy Diffusion of Auto Emission StandardsPolicy Diffusion of Auto Emission Standards

Why does diffusion occur? What is the impact?Why does diffusion occur? What is the impact?

1.1. Mechanisms of Policy DiffusionMechanisms of Policy Diffusion• Analyze mechanisms of diffusion and impact of Analyze mechanisms of diffusion and impact of

adoption on automobile exports adoption on automobile exports

2.2. Impact on Air Quality, Health & ClimateImpact on Air Quality, Health & Climate• Impact of China’s pollutionImpact of China’s pollution• Scenario analyses of China’s adoption Scenario analyses of China’s adoption

3.3. China’s Policymaking ProcessChina’s Policymaking Process• Impact of domestic politics on standards adoptionImpact of domestic politics on standards adoption

Methodology ConclusionQuestionQuestion Analysis 1 Analysis 2

Questions & ArgumentsQuestions & Arguments

Why did emission standards diffuse?Why did emission standards diffuse?

What happens after adoption?What happens after adoption?

Countries adopted standards to enhance theCountries adopted standards to enhance thecompetitiveness competitiveness of their auto industries. of their auto industries.

Except for low-income countries, automobile exports Except for low-income countries, automobile exports increase.increase.

QuestionQuestion Methodology ConclusionAnalysis 1 Analysis 2

Mechanisms of DiffusionMechanisms of Diffusion 4 major mechanisms in the Policy 4 major mechanisms in the Policy

Diffusion literature:Diffusion literature:• CompetitivenessCompetitiveness• International PressureInternational Pressure• Normative EmulationNormative Emulation• LearningLearning

The “California Effect” (Vogel, 1997)The “California Effect” (Vogel, 1997)

Question MethodologyMethodology ConclusionAnalysis 1 Analysis 2

Competitiveness MechanismCompetitiveness Mechanism

The California EffectThe California Effect• Exporting countries adopt emission

standards when major importing countries adopt standards

Competitor EffectCompetitor Effect• Exporting countries adopt emission

standards when competing exporting countries adopt standards

Question MethodologyMethodology ConclusionAnalysis 1 Analysis 2

My ContributionMy Contribution

Extend competitiveness mechanism to Extend competitiveness mechanism to environmental standardsenvironmental standards

Expand the “California Effect” theory to Expand the “California Effect” theory to include developing countriesinclude developing countries

Empirical testingEmpirical testing

Question MethodologyMethodology ConclusionAnalysis 1 Analysis 2

MethodologyMethodology

Analysis 1. Event History Analysis Analysis 1. Event History Analysis Identify mechanisms of policy diffusionIdentify mechanisms of policy diffusion

Analysis 2. Gravity Model of TradeAnalysis 2. Gravity Model of Trade Assess impact of policy diffusion on Assess impact of policy diffusion on

competitive advantage in tradecompetitive advantage in trade

Question MethodologyMethodology ConclusionAnalysis 1 Analysis 2

Dependent VariableDependent Variable

Created a database of the years that Created a database of the years that countries first adopted auto emission countries first adopted auto emission standardsstandards

Dichotomous codingDichotomous coding• Code 0 – without adoptionCode 0 – without adoption• Code 1 – with adoptionCode 1 – with adoption

Question Methodology Analysis 1Analysis 1 ConclusionAnalysis 2

Independent VariablesIndependent Variables

Competitiveness: Competitiveness: • The California effect – Share of auto The California effect – Share of auto

exports to countries with standardsexports to countries with standards

• Competitor effect – Trade similarityCompetitor effect – Trade similarity• Competitor effect – Auto exports as share Competitor effect – Auto exports as share

of GDPof GDP

Question Methodology ConclusionAnalysis 1Analysis 1 Analysis 2

Independent VariablesIndependent 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 Number of countries that have adopted

standardsstandards Learning: Learning:

• Number of environmental IGOs of which Number of environmental IGOs of which a country is a membera country is a member

Question Methodology ConclusionAnalysis 1Analysis 1 Analysis 2

Control VariablesControl Variables

Real GDP per capitaReal GDP per capita

EU membershipEU membership

COCO22 emissions from transport sector emissions from transport sector (proxy for tail-pipe emissions)(proxy for tail-pipe emissions)

Question Methodology ConclusionAnalysis 1Analysis 1 Analysis 2

Standards AdoptionStandards Adoption

Tested using logit functionTested using logit function Analyzed all countries 1975 – 2000Analyzed all countries 1975 – 2000 Cluster by countryCluster by country Include year dummiesInclude year dummies

ttttttt

ttttt

TCONTROLSlearningnorm

ODAreAutoGDPshaCompetShare

1615

1413121101ln

Question Methodology ConclusionAnalysis 1Analysis 1 Analysis 2

Methodology Analysis 1Analysis 1 Analysis 2 ConclusionQuestion

InterpretationsInterpretations Competitiveness appears to be the Competitiveness appears to be the

major factor for standards adoptionmajor factor for standards adoption

High-income countriesHigh-income countries• ““California effect” & “Competitor effect”California effect” & “Competitor effect”

Developing countriesDeveloping countries• Upper-middle: “California effect”Upper-middle: “California effect”• Lower-middle & Low: “Competitor effect”Lower-middle & Low: “Competitor effect”

Question Methodology ConclusionAnalysis 1Analysis 1 Analysis 2

Qualitative EvidenceQualitative Evidence

78 interviews in China and Japan78 interviews in China and Japan• Managers in the automobile industry Managers in the automobile industry

(Honda, Toyota, Hyundai, GM, VW, Geely)(Honda, Toyota, Hyundai, GM, VW, Geely)• Government officials (national and local)Government officials (national and local)• Researchers at national institutions, think Researchers at national institutions, think

tanks, and universitiestanks, and universities

Question Methodology ConclusionAnalysis 1Analysis 1 Analysis 2

Qualitative EvidenceQualitative Evidence Main findingsMain findings

• Japanese government pushed automobile industry Japanese government pushed automobile industry to develop technologies to develop technologies

• Japanese auto industry opposed adoption of Japanese auto industry opposed adoption of standardsstandards

• Chinese government adopted the standards to Chinese government adopted the standards to reduce air pollution and to increase auto industry reduce air pollution and to increase auto industry competitivenesscompetitiveness

• Foreign-venture automobile firms in China lobbied Foreign-venture automobile firms in China lobbied Beijing to adopt European standardsBeijing to adopt European standards

• Difficult for local automobile industry to meet the Difficult for local automobile industry to meet the requirementsrequirements

Question Methodology ConclusionAnalysis 1Analysis 1 Analysis 2

01

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02

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($

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1950 1960 1970 1980 1990 2000Year

China Auto Exports to All Countries

Emission Standards Adoption

Methodology Analysis 1 Analysis 2Analysis 2 ConclusionQuestion

05

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1950 1960 1970 1980 1990 2000Year

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Emission Standards Adoption

Methodology ConclusionQuestion Analysis 1 Analysis 2Analysis 2

02

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1950 1960 1970 1980 1990 2000Year

India Auto Exports to All Countries

Emission Standards Adoption

Methodology ConclusionQuestion Analysis 1 Analysis 2Analysis 2

01

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1950 1960 1970 1980 1990 2000Year

India Auto Exports to Countries with Standards

Emission Standards Adoption

Methodology ConclusionQuestion Analysis 1 Analysis 2Analysis 2

Impact of Standards on ExportsImpact of Standards on Exports

Gravity Model of tradeGravity Model of trade Standard framework to assess the Standard framework to assess the

effects of bilateral tradeeffects of bilateral trade

Estimates the impacts of emission Estimates the impacts of emission standards on automobile exportsstandards on automobile exports

Methodology Analysis 1 Analysis 2Analysis 2 ConclusionQuestion

4 variables to consider:4 variables to consider:• StdStditit: exporter’s adoption of standards: exporter’s adoption of standards

• StdStdjtjt: importer’s adoption of standards: importer’s adoption of standards

• BothBotht t : both exporter/importer adopting standards: both exporter/importer adopting standards

• ln(Stdln(Stdtt) : log of number of countries with standards) : log of number of countries with standards

ijtiiitttijtijtijtijt

ijtijtijtijtijtijt

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GDPGDPPopGDPPopGDPDist

StdBothStdStdExport

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Impact of Standards on ExportsImpact of Standards on Exports

Methodology ConclusionQuestion Analysis 1 Analysis 2Analysis 2

Methodology Analysis 1 Analysis 2Analysis 2 ConclusionQuestion

Methodology ConclusionQuestion Analysis 1 Analysis 2Analysis 2

InterpretationInterpretation Adoption of emission standards Adoption of emission standards

except for low-income countries, except for low-income countries, positive effects on auto exports positive effects on auto exports

Adoption of emission standards gives Adoption of emission standards gives countries a competitive countries a competitive advantageadvantage

Methodology ConclusionQuestion Analysis 1 Analysis 2Analysis 2

ConclusionConclusion

Competitiveness is the major mechanismCompetitiveness is the major mechanism

Market incentives lead to more stringent Market incentives lead to more stringent environmental standardsenvironmental standards

Stringent emission standards Stringent emission standards better environment, less premature better environment, less premature mortality and more auto exportsmortality and more auto exports

Methodology Model 1 Model 2 ConclusionConclusionQuestion

Policy ImplicationsPolicy Implications

Other “environmentally friendly” Other “environmentally friendly” products may also create competitive products may also create competitive advantage 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 Developed countries can influence developing countries’ behaviordeveloping countries’ behavior

Methodology Model 1 Model 2 ConclusionConclusionQuestion