Climate policies are typically evaluated based on their domestic benefits. But Harris Public Policy’s Koichiro Ito and his co-authors show that some policies may be quietly improving those products worldwide without receiving any credit for the global emissions reductions as a result They study a fuel efficiency policy in Japan that 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 because it was easier for automakers to sell some of the same cars in the U.S., the subsidy led to about 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.