Institutional reasons for the effect of environmental regulations: Passenger car CO2 emissions in the European Union,United States and Japan

Addressing environmental externalities is traditionally seen as hinging on effective state regulation. It is argued in this article that it is not just the material facts of regulations, such as their stringency and timing, that explain the extent to which firms internalise environmental externalities. The extent to which they do this is better explained by institutional aspects of regulations: how rules are made. This is because the institutional basis on which rules are made is a key factor in their effectiveness. This proposition is examined with reference to the car industry and the regulation of passenger motor vehicle carbon dioxide emissions in the industry's three hubs of the European Union, United States and Japan. The conclusion reached is that although different regulations in each territory have affected firms' behaviour, it is not the material facts of these regulations alone that explain differences in the industry's compliance with, or response to, them, but the institutional contexts in which the regulations were developed. Furthermore, as car firms are multinational corporations these different institutional contexts have implications beyond their home territories.