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The impact of California's environmental regulations ripples across the U.S.

A MARTINEZ, HOST:

Now that California has banned the sale of new gas-powered cars by 2035, other states may follow and adopt those stricter standards. It's actually happened plenty before. Adrian Ma and Darian Woods from our daily economics podcast The Indicator explain the California effect.

ADRIAN MA, BYLINE: So the California effect is this idea that when the Golden State adopts strict regulations, those standards often end up spreading to other jurisdictions. It was a term coined by David Vogel, who's now a retired professor at the University of California, Berkeley. And David says you can especially see this effect with environmental standards.

DAVID VOGEL: Regulating appliances so they use less energy, extensive labeling of hazardous materials in California, building codes which attempt to make buildings more energy-efficient.

DARIAN WOODS, BYLINE: David says that the prime example of the California effect is the state's regulation of car emissions. So think back to the 1970s, and air pollution in Los Angeles was really, really bad. And when Congress was passing the Clean Air Act, California wanted a special carve-out to pass emission standards that were even stricter than what the federal government would require of other states. And Congress said, OK.

MA: And then California turned around and said to carmakers, you want to sell here, you got to sell cleaner cars. And the carmakers said, fine. So how did this one state bend these multinational corporations to its regulatory will? Well, there are a couple of reasons - economic, of course. First, California is what economists call ginormous. With a population of 39 million, it is by far the biggest state.

WOODS: And check out California's spending power. In 2020, roughly 1 out of every 8 consumer dollars in the U.S. was spent by a Californian.

VOGEL: It's such a large market so that anything which California acquires for its own product sold in its state is going to resonate among national and global companies. If you don't want to have to make separate products for California and the rest of the country, you might as well just make them according to California's standards.

WOODS: And this business logic of regulations can even extend overseas. So, for example, David says that in the 1970s, the European Commission was debating how to regulate auto emissions. And German carmakers raised their hands and were like, we want stricter regulation.

WOODS: Why? - because a major portion of the market for German cars is in California, and the German manufacturers realized that they needed to meet California's standards to retain their impact on the American market. And they pressured the European Union to adopt environmental standards which were as close as possible to those of California.

MA: Now, it's important to say, a lot of people do not see California's power to move markets as a good thing. Earlier this year, attorneys general from 17 states actually complained to the Environmental Protection Agency, saying that California, with its special emissions carve-out - it has too much power. And Missouri's AG actually called California's rules oppressive.

WOODS: In any case, none of this is stopping California lawmakers from promulgating away. Last week, lawmakers passed a whole raft of climate legislation, from new restrictions on oil and gas drilling to an ambitious goal of achieving net zero carbon emissions by 2045.

Darian Woods.

MA: Adrian Ma, NPR News.

(SOUNDBITE OF MOKHOV'S "SOLACE REFLECT") Transcript provided by NPR, Copyright NPR.

Darian Woods is a reporter and producer for The Indicator from Planet Money. He blends economics, journalism, and an ear for audio to tell stories that explain the global economy. He's reported on the time the world got together and solved a climate crisis, vaccine intellectual property explained through cake baking, and how Kit Kat bars reveal hidden economic forces.
Adrian Ma
Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.