President Obama set in motion a plan that would require that new cars achieve over 50 miles per gallon by the year 2025. The Obama Administration argued that this policy would slow down climate change and would save households $ by reducing their gas expenditures. If this "free lunch" is true, then why is President Trump likely to oppose this regulation? You do not need to be Berry, Levinson or Pakes to answer this question. A subset of Americans like to drive big cars and this regulation limits the ability to purchase such big new cars. The people who typically want these cars are "fly over state" people where President Trump is very popular.
So, suppose that I live in rural Tennessee and I drive 20,000 miles a year in a light truck that achieves 20 MPG. If I can no longer buy this truck, then I have to substitute to some other vehicle . Yes, the new one will achieve greater fuel economy and will save me money but if the new vehicle is a weak substitute for my light truck, then this regulation has made me worse off.
President Obama's White House ignored the spatial incidence of his well intentioned regulation. Now consider a San Francisco environmentalist who walks and lives near public transit, if he drives his Prius 5,000 miles a year ; his life is barely changed by this new regulation.
The irony here is that President Obama's regulation saves the rural drivers the most $ in "saved gas expenditure" but the rural/suburban drivers oppose this regulation! A progressive might argue that such drivers are not voting in their self-interest. I would counter and say that these rural voters maximize their utility and value their fossil fuel intensive lifestyle and have revealed a preference for these vehicles that President Obama wouldn't let them buy anymore.
This political economy of support for environmental regulations between coastal states and inland states needs to be explicitly discussed. In previous posts, I have argued that the coastal elites should be paying inland states for their political support. This is a property rights fight.
To state this blog post with some formal economic logic, we need to estimate consumer preferences for differentiated products to know how much consumer surplus they lose when regulation mandates a truncation of the attributes of new differentiated products. Of course this regulation offers carbon dioxide reduction benefits (assuming there isn't a big rebound effect) but what are the costs of this regulation? The Obama team is making certain assumptions about the preference distribution without doing any "structural estimation". There is an implicit benevolent paternalism in their regulation as they nudge (through CAFE) households to no longer buy a big car. The Obama Team is saying "a car is a car and thus if we all buy small cars you still have a car and you save gas $".
Now, the one counter to this is the "Arms Race" that we would all be better off if cars are lighter because of the safety externality. Whether people in the rural south value this point, is an interesting empirical question.
Anderson ML, Auffhammer M. Pounds that kill: The external costs of vehicle weight. The Review of Economic Studies. 2014 Apr 1;81(2):535-71.