With CAFE, the entire sales volume for an automaker is averaged across the country. If CO2 is regulated at the state level, even though each state has the same standard, automakers have different sales mixes in different states. An average would have to be calculated for the sales in each state. In states more where a greater number of larger, heavier emitting vehicles are sold, automakers may have difficulty meeting the averages while sales in other states where more smaller cars are sold could not be used to offset those.
However, establishing a national standard that California and other states would agree to won't be easy. The current California mandate would essentially require 44 mpg by 2016, a number that would be difficult to achieve unless fuel prices are also substantially higher than they are now.
[Source: Detroit News]