The California Effect

I was all set to write a blog this week about the recent enactment of a fairly comprehensive cap-and-trade program in California.  But then, my mentor Rob Stavins, sent around his blog and I realized there was probably no point in re-writing what he had done so well.

So I link you to Professor Stavins’ blog where he discusses a recent paper he wrote with Professor Joe Aldy (double-Dukie) that examines several different options for pricing carbon. The paper looks in detail at regional initiatives such as the one just enacted in California.

<For students, if you want credit for you comments, please come back here to make them.  If you leave comments on Professor Stavins’ blog, the graders won’t necessarily find them.>

45 Comments

  1. Alice

    I find it really interesting that this blog post didn’t address what I consider the largest issue when discussing international greenhouse gas emission reduction plans – whether or not to include developing nations in the requirements. Even in the paper he wrote the issue itself does not seem to be directly addressed.
    That is what I think a lot of people want to hear about, particularly because China is the world leader in GHG emissions. There are solid arguments for both excluding developing countries (because they did not cause the problem) and including them (avoid free-riding and leakage), and I’m not sure I’ve met anyone who is solidly on either side. If the developing nations are provided with feasible renewable energy alternatives there is no reason not to include them in an emissions reduction scheme, but I think it is unreasonable to set limitations on developing nations that developed countries were not subjected to without providing them with assistance to transition.

  2. T.J. Pepping

    While there are certainly pros and cons to the adoption of a cap-and-trade system in California as opposed to the U.S. and, subsequently, much of the world (such as emissions leakage and whatnot), due to the nature of our politics, it seems as if this is the only way forward. In the U.S., any sort of federal climate legislation is unlikely to come until at least 2013. Additionally, the EPA really has no sufficient means of addressing climate change, which is what they’ve attempted to threaten Congress with doing if no climate legislation passes. However, the only federal legislation that could really be applicable to GHG emissions is the Clean Air Act, and this just is not equipped to address a pollutant like CO2 which comes from countless sources. The EPA has tried saying that they will only restrict GHG emissions from certain parts of the economy, but that doesn’t really hold up to the language of the Clean Air Act. Thus, with no federal legislation on the book or in the near future that can address climate change, initiatives like those in California seem to be the only serious means of attempt to address climate change in the U.S.

  3. Rachel Dimmitt

    California has been the testing ground of some very interesting, and in some cases innovative, environmental policies. Given California’s budgetary situation and the economy, I wonder if the motivation behind this policy was addressing climate change or if it was designed to capitalize on the potential revenue that Professor Stavins discusses in his blog. I have to say that it was likely a bit of both. The idea of using a carbon tax or cap-and-trade program to reduce the federal deficit has been bandied about–it is actually one of the options on the Committee for a Responsible Budget’s simulation (this nonpartisan group provides a simulator on their website where you can go in and make different policy and budgetary decisions in order to reduce the deficit to 60% of GDP by 2018). I’m not sure how politically viable it is but I wonder if perhaps changing the way we frame climate change legislation can influence the outcome. What if we combined the interests of the environment and the interests of the federal government? Perhaps this isn’t the stance a “true” environmental policy advocate would take, but what we are doing right now isn’t working so maybe it is time to change our approach…governments around the world are certainly going broke–yes a carbon tax or cap-and-trade could have a negative economic impact in the short run, but wouldn’t it provide a source of revenue and a strong incentive for innovation in the long run?

  4. Amy Kochanowsky

    In his blog, Stavins stressed the importance of international coordination, but notes that having national cap-and-trade programs that are linked on an international scale may be the most viable option. It seems more feasible to give each country the flexibility it needs and the autonomy it wants to implement its version of a cap-and trade system.

    At first I questioned the efficacy of the California program – would it just drive companies out of state to locations where they could freely pollute? Wouldn’t it make it harder to later implement a national program if all of the regional programs had very different structures?

    After considering Stavins’ suggestion of national programs within an overall international framework, I’m wondering if the solution for the US is a network of regional systems. We could still have some sort of federal standards and oversight linking the regional groups. It seems as though in the US, climate change will be addressed from the bottom up rather than the top down.

  5. Angela Vasconcellos

    What stood out the most to me in this article is the discussion around political polarization how environmental and climate change policy has been yet another casualty. Having worked at the Nature Conservancy on US climate policy in the summer of 2010, I saw first hand that science and economics seem to have little to do with how a legislator actually votes, it is now all about politics. It still amazes me that senators will refuse to use the words climate change and there are other senators that will say it is all a hoax and conspiracy theory. I have to question whether they really believe that or they are just trying to appeal to their constituency. Even in California which tends to be far more progressive, there were several attempts to stop AB 32.

    While this situation is frustrating, I think that there is still hope when states take matters into their own hand and move forward. Although there is still a problem with free-riding and leakage it is a step in a positive direction and is signalling to the rest of the country that something needs to be done. I also think that we as environmentalists need to do a better job of communicating the issues and raising awareness around the importance of climate change. The more people that understand the issues and how it will affect them directly the more likely they will care and therefore the legislators will care because they want the votes. We need to do a better job of translating the complicated economics and science so that people can understand and see the relevance of the issue.

  6. Sara Dewey

    I am amazed that California’s adoption of cap and trade has not made bigger national news, and I think it is indicative of how far climate change has fallen off the public agenda. It is encouraging that California is taking leadership when Congress is utterly gridlocked and even some of the conservative state legislatures eastern states participating in RGGI are taking steps to leave the program. It seems that all movement on climate has been backward since the passage of Waxman Markey, and this is an exciting step.

    I am particularly interested in the political question Stavins raises: what does the future hold for the politics of cap and trade, and how could it regain a place in the public dialogue? I do think it’s true that in economic downturns, people start worrying about their own wallets so much that the environment no longer seems to matter. I am not sure if anything short of a paradigm shift in Americans’ relationship with energy will make people understand how their economic well-being is linked to the environment. I also think that the Obama administration clearly chose to spend their political capital on getting healthcare across the finish line, and members facing reelection had no appetite for another politically difficult vote.

    Now, Republican candidates for president are running away from climate change as fast as they can. Even Romney, who espoused plenty of moderate views as governor of liberal Massachusetts, is running very far to the right. That’s what you have to do in a primary. John Hunstman is the only candidate saying that we have to listen to scientists on this issue, and he is already tainted as far as many on the right are concerned from serving in the Obama administration.

    I guess all of this is to say that despite the absurd political theater happening in Washington, this progress in California really does give me hope. But the state has to do it right. Maybe it’s a good thing that no one is paying attention to this nationally, because if EU-ETS is any guide, there will be some bumps along the way getting this policy on its feet. And after that, we can use it to make a case for national action.

  7. Peter Browning

    I’m intrigued to see how the California’s economy-wide cap-and-trade system plays out. When first envisioned, CA’s cap-and-trade was supposed to be one part of a regional Western Climate Initiative (WCI) trading program, which included a number of other states and Canadian provinces. Almost all of the other partners have since given up plans to implement their own cap-and-trade, and the few who still say they plan to have not begun to work out the details. If the WCI fails, I fear that the California-only approach will also fail. Businesses in California often complain at the onerous environmental regulations that make doing business in the state more costly than it’s worth.
    I’m not saying that I think that California shouldn’t have strict environmental protection laws – I take pride in being from California because it is the national leader in such programs – but it is hard to argue against the business case when the state is surrounded by states that do have a much lower environmental ethic (AZ, NV). Leakage seems like it may play a major factor in the success or failure of California going it alone. I hope for the best, but I’m taking a wait and see approach. In the end, I think that a national program is necessary. The environmental movement needs to get beyond the failure of Waxman-Markey and restart the national dialogue.

    • Rachel Dimmitt

      Having grown up in California and lived in Nevada for the past five years, I have to say that I don’t necessarily agree with your assessment about Nevada’s environmental ethic. Although they are nowhere near California, Nevada has made substantial investment in renewable energy and in fact is making a concentrated effort to contribute to an environmentally savvy workforce. The University of Nevada is developing a certificate program in renewable energy and they have done an extensive amount of training/studying in regards to geothermal energy. I think that although California may have to go at it alone, it is such a major political player in the region that eventually other states will fall in line. Look at changes in Nevada’s renewable energy generation–they are attempting to drastically increase it in order to be able to sell to California given California’s increasing renewable portfolio standards…

  8. Jedediah Raskie

    As a former Californian (I live there for the last three years), I can definitely say that California and its people are very environmentally conscious. Much more so than any state I’ve ever lived it. They have extremely rigid environmental standards, and usually take the lead on many environmental issues. That’s why I’m not surprised by this move. The one thing I would be concerned with though is “LEAKAGE”. As California tightens its regulations and makes polluters pay, some industries will be forced by their bottom line to move out of California or export their CO2 emissions to other states with less penalties. Buying inputs produced in other states, or even physically moving a production facility to a state with more lax regulations will not fix the problem. And there are many adjacent states that would gladly accept an influx of business, and not punish them for polluting. The key for this, or any GHG cap and trade system to work is comprehensiveness. All states need to get onboard, or the federal government needs to pass regulations that are just as stringent for this to be a success. And even if the U.S. takes a hard line approach to GHG emissions, businesses will export their emissions to other countries with less penalties and taxes. Therefore, this needs to be a global approach. I applaud California for taking this step, but it can’t stop there. This battle is just one of many in a long war against GHG emissions and climate change.

    Until there’s nowhere for polluters to run to, they will just find a way to maximize profits by whatever means necessary. Nobody wants to ruin the environment, but everyone has a carbon footprint, and makes decisions based on money rather than the environment when they get squeezed financially.

    In California, there are plenty of businesses and other GHG emitting ventures that will be unable to move, such as infrastructure, power plants, and transportation sectors. These will bear the brunt of the burden, and suffer financially, but this is the way of life in California. I look forward to seeing if any other states or the federal government follow suit.

  9. Lauren Latchford

    I am excited to hear that the California Air Resources Board has adopted a cap and trade program as part of AB 32. Even though compliance will not begin until 2013, I hope that its implementation and potential success can give other states, especially those states that are trying to pull out of RGGI, a reality check in that cap and trade programs can succeed and environmental policy will cease to be a part of political collateral damage. I do agree that the economic downturn has contributed to the negative opinions that some might have of imposing environmental regulations (higher prices, lost jobs in certain industries)but we need to look long term and understand that the implementation of political instruments like cap and trade programs now will greatly reduce the cost of environmental damage, higher costs and lost jobs later.

  10. Nathalie Morison

    While I share Jed’s concern of leakage, I think the implementation of state and regional climate policy initiatives such as CA AB32 and RGGI will prove useful when considering a Federal program to reduce nation-wide greenhouse gas emissions. Already, the federal government has been able to learn from the RGGI initiative and can employ its best practices, while avoiding its pitfalls.

    In light of the political polarization that currently plagues congress, our best bet may be to increase regional, state, and local climate initiatives in order to reduce GHG emissions before too much damage and greater costs are incurred. While the reputation of cap-and-trade systems has been tarnished, I don’t think we should entirely walk away from market-based environmental policy instruments given our alternatives. Cap-and-trade systems are proven to work and are generally more politically feasible than inflexible prescriptive measures.

  11. Taylor Gelsinger

    As mentioned in the article, due to our current economic state and political polarization, adoption of a nation wide greenhouse gas cap-and-trade system does seem out of reach. However, knowing California is taking action to reduce their greenhouse gas emissions is encouraging. I am hopeful that if AB 32 is successful, the California effect will take place, making it a nation wide policy or even lead to international agreements.

    I believe to make progress now, action will have to be taken on the local level. There will always be issues with free-riders, leakage, and disagreements about how to go about combating greenhouse gas emissions, but we are currently not getting anywhere. Cap-and-trade may not be the most efficient means for reducing emissions. But, by trying it out on a local level we can see the results and move on from there towards the best way to reduce greenhouse gas emissions.

  12. Jonathan Clift

    The first thing I thought of was someone I know dearly and his comments on cap and trade, the EPA and regulation. I’ll protect his identity here. He often asks me what I’m learning in school and as I describe it to him he rolls his eyes and looks at me strangely. The idea in Stavin’s blog about political polarization is crucial and I think about it often not only with climate issues, but with entitlement and any other topic under debate. See, this person I ‘m speaking of doesn’t want to hear anything about cap and trade or the EPA. In a way, I find that scary. I feel like this political polarization between the two of us is a real problem. I can’t think of a way to change his mind and he could never change my mind. The comment that this change starts at the bottom is hard to believe, but at the same time it I’d like it to make sense. I think a message has to come from the top first, one with sound reason and reliability. Furthermore, I really don’t think that most people in the US have a place in discussing market-based instruments or climate policy. They really don’t understand them. Things get extremely distorted due to the lack of understanding. I mean I didn’t have what some would say is a firm grasp on the ideas until I turned 28 and was in my first semester here at the Nicholas School. I hope we can move forward.

  13. Yunzhong Chen

    My first reflection of pricing carbon is “wow, that looks so good!” But I agree with most of Prof. Stavins points except the international part. We do hope human being can act as a team to fight against the possible consequence that might have on our offsprings, but globally enacting the same standard might sometimes achieve an undesirable result. In many poor countries, people don’t know Kyoto Protocol, CDM, Climate Change, even Carbon dioxide, they live their lives far below the world’s average level, at the same time their carbon footprint is hundreds times below people who lives in developed countries. Why do they have to participate in such a campaign and accept policies that may even make their lives worse? In some developing countries, this is also true, for that they have imperatives to develop their economies. Under current circumstance, fossil fuel is the most effective way. Otherwise, the gap between rich and poor will no doubt increase faster and faster. After all, the poor will suffer the most in the context of climate change. Uniformness will not make sense in a multipolarized world. It’s better to design standards respectively for different countries if there’s no political issues. But it obviously doesn’t work well in real world. In a war we human being against volatile climate, no one would expect a “carbon invasion to poor countries” by some uniform policy or standard.

  14. Yilin Xie

    I am very pleased to see the adoption of cap-and-trade system in California. Even though we must wait until 2013 for the compliance, it is really a large progress for a state in America who refused Kyoto Protocol. I agree that the economic crisis increases the difficulty of the regulation on carbon emission because the result of higher prices of industrial materials can exacerbate the bad economic situation. However, I think it is not so bad thing. Economic crisis provides an opportunity to reshuttle the industrial structure and the market. Knowing that the fossil fuels will run out in several decades, every firm should be given enough incentives, or be forced, to finally adapt to the situation without fossil fuels. It is a challenge, but it is a chance. It is cruel, but it is fair. The one who can take this opportunity will survive and flourish. Such regulations should be encouraged despite the short-term pain to national economy. But unfortunately, many people today merely see the current benefits or costs rather than future ones.

  15. Taylor Pool

    I start my response to this blog post with a quote from the section “What lies in the Future?” Robert Stavins says that, “political responses in most countries to proposals for market-based approaches to climate policy have been and will continue to be largely a function of issues and factors that transcend the scope of environmental and climate policy.” I believe this is the largest obstacle to imposing a tax on carbon emissions. While it is great that California has implemented a program of their own (and I am not trying to make California sound small, they are the eighth largest economy in the world), I do not see this gaining any traction federally. Our government has a hard enough time passing bills that will affect our current health status (i.e. the health care bill), and we are constantly concerned about free-riders. I’m not sure if there is a term for an entity that sits idly by and watches a situation get worse off, all the while being concerned about “free-riders” who benefit by doing nothing (did that make sense?) But that is what we have become. Everyone is concerned about the next person, and I am constantly reminded of the saying “think globally, act locally.” In this sense I applaud California, but I have a cynical view on the outcome of their actions. California seems to be the trend-setters in most situations in this country, and I hope that it stays true in this situation.

  16. Rouna A

    Since the blog mentioned international coordination and internationally-employed market-based instruments, I recalled that last week I happened to read an article titled Carbon Tax Scenarios for China and India. The article illustrates that “it is not realistic to assume that either China or India will introduce economy-wide taxes on GHG emissions in recent years” and it is not fair to expect two very different countries to make similar engagements in climate change. Thus I don’t think applying uniform tax rate on carbon in all countries is feasible. Then I read Robert Stavin’s paper and found his view that “In some developing countries reluctant to implement a carbon tax, an initial cost‐effective contribution to combat climate change could take the form of reducing fossil fuel subsidies….developed countries could commit to constrain the use of their tax revenues in ways that produce global benefits. For example, carbon tax revenues in developed countries could, in part, finance major research and development programs on zero‐carbon technologies and adaptation efforts in developing countries, while developing countries could freely use their tax revenues in ways that best facilitate their development.”
    International coordination is both easy and difficult. When thinking about the future of combatting climate change, we should not be shortsighted. It’s impossible to gain without giving up. Every country should sacrifice some of its benefits to realize the joint goal of saving our planet.

  17. Yang Liu

    It’s interesting that we recently had a discussion about the kyoto protocol and copenhagen climate change conference, which made me think more about the political issues behind from a different perspective. Because of the structure and operation model that America has, it is harder to adopt a strict environmental protection laws than it is in China. As has been mentioned above in many comments, if stricter criteria is adopted in only one state, leakage is a major concern, of which the future could not be foreseen yet. But given the other environmental protection precedent in California, such as electric saving as discussed on Energy class, I’m quite optimistic about the future.
    If the adoption of the cap and trade mechanism is successful in California, it will be a reference and enlightenment not only to other states in the U.S., but also to the rest of the world.

  18. Julia Goss

    Based on the U.S.’ current political situation and the difficulties previously encountered with implementing market-based instruments to reduce GHG, even adopting a nation wide cape-and-trade system seems unfeasible. However, by passing AB 32 I believe California has taken a big step in advancing the idea cap-and-trade systems are an effective mechanism for reducing GHG levels. Because a cap-and-trade system is very unlikely to have been implemented on a national level, states can at least look to California as another approach to reducing GHG emissions. While I believe the implementation of a cap-and-trade system in California will benefit the state and hopefully influence the nation, once we approach an international level is it still significant? Stavins addresses the need for international coordination and how the location of greenhouse gases is irrelevant. I am aware he outlines three basic plans for internationally-employed market-based instruments, however, I’d like to know how feasible these are and how far off we would be to implementing them? I think California’s bill is a positive step in terms of implementing a national cap-and-trade system, however, just wonder what this means for an international setting, because ultimately that’s what really matters.

  19. Erin Lett

    I wonder how much “leakage” will actually occur due to AB32. Many of the largest GHG emitting industries (e.g. electric utilities) are very capital intensive, and there would have to be a huge disparity in production costs to make building a new out-of-state plant cost effective. In addition, the utilities industry is not perfectly competitive and can likely pass on the costs of regulation to consumers. Other industries with large GHG emissions (cement manufacturing) require being located near a source of raw materials (in this case a quarry containing a suitable grade of limestone) and the final market due to high transportation costs; state regulation will not be the deciding factor for these industries in location decisions. So while some leakage will occur, I wonder if it is or should be a major concern.

  20. Roxanna Farshchi

    Not surprisingly (I feel), I have recently been struggling with the concept of the California Effect. In Environmental Law we learn that California is a leader, that it somewhat inspires other states to follow suit in stricter laws, or causes companies to follow California law because it is too difficult to tailor to multiple. However in economics we learn how stricter laws encourage businesses to grow outside of the state. With the passing of AB32’s final stages, I feel that I am more surprised that the news is not bigger and more widespread across headlines – which way will this “California Effect” go? Perhaps because this is not a nationalized regulation this will not be considered vital for business, but rather a nuisance, and business will move. California has been suffering economically (as everyone else) and as a state employee, I worry for where this is going in terms of actual effective implementation, when a more widespread approach is what matters more.

  21. Tamar Stern

    We know climate change is a global problem because the distribution of effects of GHG emissions are not dependent on where emission occur. In class we talked about the free rider problem of climate change, and the theory that poor countries should not be responsible for climate change or GHG mitigation because they were not a part of the cause. We also talked about their exclusion leading to specializations in highly polluting industries as their economies grow. This blog by Stavins addresses “internationally employed market based instruments” that can be cost effective where each country agrees to implement the same carbon tax or where there are international tradable permits. I would like to consider how poor nations would be involved in the international programs he discusses.
    He mentions both taxes and international tradable permitting as possible international programs, but specifically promotes a “decentralized system of internationally linked domestic cap and trade programs. He believes this will reduce compliance costs and improve market liquidity. This could result in a huge economic benefit to poor countries if they were allotted permits. It is likely that they do not have the industries in place to use permits, and therefore will sell them to more developed countries. These funds could be extremely beneficial if put to good use such as education, but the development of infrastructure might be hindered if they are now restricted from carbon emissions. This seems to put poor countries as a catch-22, and would require a fine balance of selling permits and retaining them to cover development emissions. Stavins states that it is important for countries to “get the most environmental benefit out of their mitigation investments” to encourage participation in a program. Hopefully, underdeveloped nations would see enough benefit to take part in the program and work with the rest of the world to reduce overall emissions.

  22. Malissa Hubbard

    I do not believe this policy will directly cause a reduction in carbon emissions. California will likely reduce its emissions but this may come with an increase in emission in other states due to freeriding. However, I think indirectly this policy will cause a reduction. As often happens, policies introduced in California end up spreading to other states in the United States. California tends to be a policy leader in directing future state changes. This policy represents the kind of support we need to push future carbon cap and trade in the U.S. No serious change in the way carbon is emitted will occur until a global standard is set and adopted by the majority of countries. A global change takes a long time to develop and this is a small step in the right direction for a petroleum guzzling country.

  23. Kelsey Ducklow

    Like the other commenters, I am excited by the passing of AB 132 by California. I think that it is a major step taken in the United States that may help us eventually reduce our GHG emissions. True, this bill only applies to California, but given the political climate at hand, it seems that a nation-wide GHG policy is still a long way off. I hope that this step taken by California will not only help bring carbon policy (back) to the front of the minds of national policy makers, but that it will also convince them and Americans in general that a GHG policy of this kind is a possibility.

    However, while I think that the California policy is potentially useful in terms of convincing people of the need for a national GHG policy, I am not wholly convinced that AB 132 will actually help reduce GHG emissions overall. Yes, it will reduce emissions specifically in the state of California, but I worry that there will just be leakage of emissions given that industries can fairly easily move from California to other nearby states.

  24. June Reyes

    As an undergraduate, I had worked one summer canvassing the streets of LA asking people to financially support getting AB-32 passed and while it took longer than expected, I’m glad we are one step closer to starting some real reductions. I believe that California’s programs will work to some extent. For those businesses that find it too costly to do business in California– they will leave without changing their emissive practices and essentially cause a leakage of greenhouse gases. However, I anticipate that there will be a net positive change in carbon reductions.

    California has also been a pioneer for progressive regulations that improve social welfare. I believe that California can show this system works and this will spread domestically. However, Stavins makes the point that “climate change is truly a global commons problem.” While this is a good point, there may be reason to make an argument that political entrepreneurship is needed to get countries on board. The actions of nations and states taking on the issue of climate change may be the push for international coordination. However, once these systems exist globally, it will need to move to a more comprehensive system, which will be another challenge for the future.

  25. Leland Moss

    I went to the environmental markets conference in L.A. last week and the new California legislation was obviously the main topic of discussion, so most of my points come from discussions that were had at that conference.
    To Alice’s comment about developing countries, one of the presenters discussed China in depth when discussing the U.S.’s failure as a country as a whole to act and said it looked like this would be yet another area that China would likely surpass us in. Brazil too has started creating carbon markets.
    What was constantly brought up and currently the bigger issue is the hope that California does not have a repeat of the 2000/2001 energy crisis. With various new regulations and guidelines there is the distinct possibility that another series of shortages and rolling blackouts could ensue. This would likely not bode well for cap and trade spreading to other states if they saw this occurring. As some have discussed similar ideas have been tried in other locations such as the ten states involved in the Regional greenhouse gas initiative (RGGI). People in comments were critiquing states for backing out of this, but at the same time RGGI is laughed at by those in California since there is a sever over allocation of permits and it really accomplishes very little.
    This new legislation in California is likely to be attacked on multiple judicial fronts. First off it creates commerce with foreign countries and the state of California, something directly banned by the commerce clause. In addition the commerce clause comes into play since this act will regulate people outside the state who legally cannot be regulated by the state. Another large issue that many fear with the system is when discussing offsets how buyer liability will work. If California revokes a certain offset who will be held liable? This is a key issue to many companies that will rely on offsets to meet their levels. Also very difficult to confirm future offsets since many may change or not be there in future years.
    I really like the idea of using markets to solve environmental problems, but unlike the free market, this market and its demand has to be designed. This leaves a lot of potential room for error. And with the term “cap & trade” a very dirty word in a lot of political circles these days it may be a tough battle to pass. Sadly cap & trade falls into a moderate enough of a category that both political extremes dislike it.
    Many comments also came at this from an EPA angle, which I think is possible under section 111 of the clean air act and section 110 explicitly allows states to use market based solutions. But with all the issues and lawsuits the EPA is having with the Cross-state Air Pollution Rule (CSAPR), which replaces Clean Air Interstate Rule (CAIR) and all of the flawed data the EPA has revolving around CSAPR, I do not think they should try and take on a full fledged cap and trade system.

  26. Nicole Argyropoulos

    Being a California native, I find this blog post incredibly interesting. Since California is the 8th largest economy in the world (shocking given the current budget deficit), I am sure that this cap-and-trade program will be very influential in both a positive and negative way. In addition, I think California has been a testing ground for several environmental policies and hopefully (if some of these policies are proven to be successful—like the Clean Air Act was for Los Angeles) then they can be models for other states, countries, and regions of the world. One aspect that Professor Stavins did not mention is how California will deal with issue of Los Angeles’ especially dirty air pollution. Los Angeles has been struggling for years (although the pollution has decreased substantially since the Clean Air Act) to reduce their air pollution. Given the fact that the Lead Phasedown did help with some of the toxic components cars were emitting, California still greatly suffers with carbon emissions due to their heavy dependency on being a car culture. Policy has been a weak instrument to reduce emissions from cars because most Americans believe they have an inherent right to be able to drive their vehicle as much as they please. As a cap-and-trade system will be influential to industry and hopefully reduce carbon, how will we reduce the carbon from vehicles? The Clean Air Act, the Lead Phasedown, Cash for Clunkers, and other policy instruments have all had their positive and negative aspects. The cap-and-trade program hopefully is a step in the right direction, however I looking forward to the day when the revenue from programs like cap-and-trade are used to create better public transportation throughout California. In combination with a cap-and-trade and option for efficient public transportation, I would speculate that carbon emissions would be greatly reduced. Although this is a lofty hope, I am optimistic that California will one day invest in a cleaner transportation options.

  27. Kate Brogan

    The part of this blog post that resonated the most with me, and several of my classmates it seems, it that political posturing has trumped real considerations about the costs, benefits, and potential strategies of reducing GHG emissions. This problem of political taglines superseding real scientific and economic knowledge is frustrating and disappointing. It seems like perhaps the biggest challenge in moving from a state level emissions reduction plan to a national or even international plan, is convincing legislators, and the general public on some level, to put partisanship aside and concentrate on using sound science to make informed and beneficial decisions.
    I attended an informal meeting with Dr. Pimm this week, where he discussed his views on the role of university educators. As you know, his scholarship is frequently cited by mainstream media, and he is intentional about providing press releases and speaking with the media, as well as maintaining an active blog and social media accounts to inform as many followers as possible. He really emphasized the concept of making science “stick”.
    Perhaps Dr. Pimm’s message of sticky science, and presenting scientific and economic data in a way that engages and provokes thought, should be better applied to the concepts of climate change and GHG emissions. California has an opportunity (if all goes well in the intial implementation) to become an authority in GHG emissions, and hopefully will take Dr. Pimm’s position of publicizing its every success, to serve as motivation for the rest of the country, and convince the national government that a broad GHG reduction plan is both feasible and perhaps profitable (or at least self-sustaining).

  28. Sarah Dallas

    I think that the passage of AB 32 is incredibly exciting and provides some hope for the future. Although I do not believe that California’s attempting to reduce its GHG emissions to 1990 levels will, on its own, have a significant impact on climate change, it is a significant first step towards America’s addressing the issue. Over the past many environmental issues have not been addressed on a national level. As a result, it has been necessary for individual states to address environmental issues and enact appropriate regulations. Once a number of states have enacted such regulations it is more likely that Federal regulations will be implemented in order to create uniformity among the states. Now that California has decided to adopt a cap-and-trade program in order to reduce GHG emissions, I would hope that if this program is successful other states will follow suit, and eventually the issue would be addressed on a national and global level.

    Since CO2 is a stock pollutant emitted worldwide, one state alone reducing its emissions will not have a significant effect on climate change. It is only if the U.S. and other nations make efforts to reduce GHGs on a national level that their efforts will be effectives. In addition, even if many countries attempt to address this issue on a national level, these efforts will be ineffective as long as there are other countries that do not join in. This is because, there would always be the potential for spillover effects, with non-participatory countries specializing in high carbon products. This would undermine the entire effort since emissions would just be emitted elsewhere rather than reduced overall. Nevertheless, I believe that California’s initiative to reduce GHG emissions and implement a cap-and-trade program is a very positive first step. This hopefully will create the momentum for other states to take action as well, either through a cap-and-trade program or a tax.

  29. Rachel Baker

    I would like to comment on the ’international coordination’ section of Dr. Stavins’ blog post. I absolutely agree that international coordination is necessary- not only for any greenhouse gas (GHG) emissions reduction scheme to be cost effective, but also to convince global powers to commit to GHG reduction. In many cases, countries are not willing to undergo the political and financial risk of the economic restructuring required to substantially reduce GHG emissions- particularly if large global powers are not on board.

    Unfortunately, these global powers face the largest cost in reducing their emissions, and the greatest ability to adapt to effects of climate change; consequently they have comparatively low incentive to commit. This applies most notably to the United States. Without the US involved (and for various other reasons) the Kyoto Protocol has very little teeth. The Protocol expires in 2012, and the intent in UNFCCC negotiations is to either renew the Protocol for a second period, or develop an alternative. Considering the lack of progress on this front in the last few Conferences of the Parties (COP) it seems likely the Protocol will expire, and not be immediately replaced.

    For this reason, it is important that efforts like California’s cap and trade system are developed. If the program is successful, it may sway US policymakers, and provide a showing of the United States’ good will and progress to other parties at UNFCCC conferences. We must develop domestic policy before we are equipped to implement international policy. Although US negotiators at COP are willing to negotiate, they are unable to act without the support of the US congress. Initiatives like California’s cap & trade system are a good start towards building domestic policy.

  30. Jason Wong

    First of all, although I felt that Professor Stavin’s post was informative, it left me unsatisfied. It gave me a broad picture of the significance of California’s newest cap-and-trade system and of carbon pricing instruments in general, but I didn’t feel strongly convicted of anything in particular.

    Having said that though, I do agree with his assessment of the state of political polarization in the US and how it has severely influenced the progress of much-needed environmental policy. I read Thomas Friedman’s Hot, Flat and Crowded recently, and this post reminded me of the amount of damage both parties are doing both to America and the world due to their selfish, narrow-minded jockeying for power. This may sound harsh, but I don’t think that it’s inaccurate, and most Americans would agree with me on this. I think the point that Prof Stavins drove home for me was that “failure of cap-and-trade climate policy…was essentially collateral damage in a much political war.” That saddens me to think that something as important as environmental policy is used as nothing more than a plaything, a poker chip, of essentially no significance. Yet this is political reality in America, and probably in many other countries as well. Woe is the day when all serious economics are nothing more but subject to the play of politicians who aim for nothing more than the advancement of their reputation in the arena of populism.

  31. Shuang Xia

    I quite agree with Professor Stavins that California’s formal adoption of its CO2 cap-and-trade system is an important milestone on carbon pricing policies. It is exciting and ambitious. What I am interested most is how the California government will implement the new policy in the following days. As the name of the new policy implies, a CO2 cap-and trade system mainly involve two parts. The first part is setting a cap, deciding how much pollution in total will be permitted. The second part is allocating the pollution licenses and establishing a state-wide market for auction of extra credits.

    First, I wonder how much the total abatement of CO2 emission would be. This might show the determination of the California in reducing CO2 emission. For me, the adoption of CO2 cap-and-trade system is a significant progress in exploring new method of reducing GHG, but it does not mean there might be a great difference in the final pollution number. It remains unsure.

    Furthermore, I am interested in how the state government deals with great challenges in allocating the pollution licenses and establishment of the permit market. A suitable allocation of pollution licenses is based on the historic data on pollution emission. Is there enough data for the government to make the final right decision? Besides, it is difficult to establish and supervise the CO2 market. What is its expense? And how can the government ensure that companies report their emissions truthfully? More research studies and new technologies are needed.

    To sum up, I am glad to the progress in management of CO2 emission. And there seems to be lots of work to do for implementing the new policy in near future.

  32. Francisco Santiago-Avila

    I completely agree with Prof. Stavins in that implementation of AB-32 is undoubtedly a catalyst for the discussion and implementation of environmental policies at a national level. Although this is obviously a step in the right direction, it might also be a little unsettling to think that a national emissions reduction program is so far away.

    At the national level, if it has been proven that market-based incentives work, all that the US lacks is the political will to move forward with these types of incentives, which definitely don’t operate in a vacuum. I’m not really sure that the average American would be in favor of implementing a cap-and-trade system (or know what that even means). This type of system, although efficient, would surely increase prices for some goods at a moment when social and economic inequality is increasing (and might be at one of its highest points in the past century), which would make it even harder to galvanize support for this kind of policy. Before thinking internationally, we have to think domestically, and environmental policy is still social policy. No policy this big operates by itself. Thus, if we want to implement this broad policy that will affect the life of every American, we also have to put in place certain economic and social policies that might mitigate those increases in costs for those in the lower and middle income brackets (such as using revenue recycling).

    Something similar comes to mind if we think about an international agreement. What happens to the countries and populations that would experience price increases in essential goods when, at the same time, they’re trying to get the fastest growing populations in the world out of poverty? What happens to those that are less competitive simply because they are less developed? Environmental regulations will undoubtedly cause some firms to leave the market, and these might well be those firms in developing countries. How do we offset this? How do we mitigate this shock to the worse off while also incentivizing them to contribute? This is the real (economic) dilemma behind environmental policy, which seems to be exacerbated when there is social and economic inequality. Unless we assure people that the economic costs for them will be mitigated and that the costs will be distributed in proportion to each person (or country’s) ability to pay; unless we have the political will to do that, I see no agreement either at a national or international level on GHG emissions reductions.

  33. Liza Hoos

    Stavins comments on how the combination of polarized US politics and the economic downturn have resulted in the reduced likelihood of environmental regulations being passed. However, the revenue-generating aspect of some of these market-based climate instruments may increase the likelihood of their implementation, as governments face large budgetary deficits. When we first learned about carbon taxes and other revenue-generating GHG policies in class, I became very excited because it seemed like a miracle cure to environmental externality problems. Pollution is reduced AND the government generates revenue so that it can reduce distortionary taxes? Sign me up!! It was a bit of a downer when the next lecture came around and we learned that in fact, the double dividends don’t quite add up to all one might hope for, due to tax interaction effects. Still, it seems a policy that leads to pollution reduction AND to a reduction in income taxes is something that both democrats and republicans could get on board with. I certainly hope that these market-based approaches gain wider support sooner rather than later.

  34. Esi Waters

    I was particularly interested in the final part of Stavin’s blog where he addressed how the failure of passing the national cap and trade policy was merely collateral for the increasing polarizing nature of American politics. I agree with this and California benefits from being a very liberal state so the stage was set for AB-32 to pass. Perhaps it was merely a combination of California being poor (increased revenue from cap-and-trade being an incentive to pass the bill) and liberal that led to passage of AB-32, but whatever it was it will be interesting to see if the rest of the country watches California to see how this policy will affect it’s economy and its carbon emissions.

    • Esi Waters

      I also wanted to add that while it is great that California has instituted a cap-and-trade policy we have to be careful that the US will follow suit with some carbon reduction mechanism soon because climate change is a global problem. California is too small relatively for the US to “free-ride” off of whatever good comes from AB-32 but since all policies take time the implement, the US better hurry up so that we can see emissions reductions nation-wide (and hopeful world-wide).

  35. Ying Hou

    As the comments mentioned about the whether or not to include developing countries in the requirements of international greenhouse gas emission reduction plans –especially China, here I provide some information about the carbon pricing in China. Last year, China decided to begin its domestic carbon trading programs by using a market mechanism during its 12th Five-Year Plan period (2011-2015) to help it meet its 2020 carbon intensity target. About 1000 top energy consumers have signed contracts to reduce energy consumption. While the time is ripe for reflcetion in developed countries on how to control the carbon emission, China just started and trying to find a way to move forward. Actually, as far as I can see, I recommend carbon tax instead of cap-and- trade for China because of lower processing fee and lack of essential condition for setting up a healthy carbon trade market.

  36. Xiaoyun Dong

    It is definitely a milestone for California to adopt the nation’s most comprehensive cap-and-trade system, which intended to provide financial incentives to firms to reduce the state’s greenhouse gas (GHG) emissions, to their 1990 level by the year 2020, as part of the implementation of California’s Assembly Bill 32, the Global Warming Solutions Act of 2006. California works as a model to other states in the united states. However, I am a bit worried whether the behavior will really decrease CO2 emission. Though I agree that the CO2 emission will be reduced in California, the result is that other states will produce more CO2 in the long run.
    Besides, I do not think there will be or should be a global agreement on carbon dioxide emission. Compared to developed countries, developing countries emit much less CO2 per capita! They also “contributed” much less for the CO2 emission in history. So it is economically and politically unfair for to ask them to bear the cost of reducing carbon dioxide. They need to get their people out of poverty, just as what the developed countries did a hundred years before.
    In my opinion, the most important meaning of California’s cap-and-trade system is to alert people that reducing carbon dioxide is extremely urgent. The public should establish the responsibility to produce less CO2 as well as make a national policy.

  37. Ashley Duplanty

    I also applaud California’s decision and will eagerly watch the affects this bill will have in the long run as well as optimistically hope that others will look at similar programs. I was most struck by Nicole’s comment regarding the problem of LA’s pollution. I can attest that the traffic stereotypes are true, driving in Los Angeles is something of a nightmare. I recently drove from Newport beach to Santa Barbara, a distance of 140 miles. What should have been a two and a half hour drive turned into close to four hours. I left at 6am and didn’t arrive at UCSB until after 930. Most of the many cars I shared the road with contained single drivers. Many people commute to work in this area. I think the bill is a wonderful step in the right direction, but I believe that LA County needs to push for fewer cars on the road. Given, we could say this for any large metropolitan area, but with a population over 12 million (LA, Santa Ana, Long Beach counties), and over 70% commuting alone, there remains a huge number of single drivers. I hope that the city of LA looks for ways of address this problem in the near future.

  38. Abigail Furnish

    I feel many good points have already been raised, especially the idea of the California effect vs. leakages debate. In some ways, it is inspiring to see the largest state leading, as opposed to the international situation where the biggest polluter (us) drags its feet. A couple other points:
    -As we discussed in class, for carbon, a tax is a preferable tool to a cap and trade. Despite all the study, it was interesting that California still chose cap-and-trade. Stavins even mentioned harmonized domestic taxes or international taxes as possible GHG policy, probably the one that would lead to the least leakages.
    -The goal of AB 32 is ultimately a 15% reduction by 2020 compared to business as usual. It took the most environmentally progressive state in the country 3 years to get this passed. Given that science has encouraged an 80% reduction by 2050, can we really hope for real reductions that will actually effect global warming?

  39. Holly Davis

    As a recent transplant to North Carolina from California, I share many posters’ interest in this topic. I appreciate Leland’s update on the issues that are currently being discussed in California regarding the passage of AB 32. I found the potential judicial challenges especially interesting since challenging laws that have been passed is a very active form of law-making in California – a fact I had forgotten while focusing on the economic aspects of the issue.

    While I hope that California does not have to “go it alone” as Peter Browning mentioned, I share his concern that if California is left with the only cap-and-trade system in the West, AB 32 will ultimately fail, especially given the current economic climate. As Jedediah Raskie
    mentioned “In California, there are plenty of businesses and other GHG emitting ventures that will be unable to move, such as infrastructure, power plants, and transportation sectors. These will bear the brunt of the burden, and suffer financially, but this is the way of life in California.”
    Based on the conversations I have had with a wide cross-section of people in California as well as numerous reports in the media, this economic downturn has been extremely hard on California and it is quite possible that the notion that “this is the way of life in California” (so just live with it) will shift to “that was the way of life in California, so we all got out”.

    While it is true many states have faced financial hardships recently, California’s budget crisis has been severe and long-standing. Interestingly, many attribute the cause of the California budget crisis to a key point in Professor Stavins’ blog: partisan politics. In the case of the California budget crisis, it is gridlock in the state legislature where each party counters any move forward by the opposite party. It is the precarious state of the California economy that makes me especially concerned that AB 32 might fail. It could be the last straw that causes some businesses and industries to finally say, “enough”. I agree with all the posters who feel a national solution is needed as well as those who commented on the need for a decrease in the political polarization Professor Stavins discusses.

    The one hopeful sign I take from the passage of AB 32 is the fact that it did pass at a time when things are hard financially and the California legislature known for not getting things done. Go AB 32!

  40. Cidney Christie

    It is a huge step forward for California to implement a cap-and trade-system and hopefully they will set a trend, but this “California effect” will probably not ripple out to other states and especially not federally any time soon. Since environmental issues are highly politicized and polarized, I unfortunately don’t see any major movements happening for CO2 emissions until at 2013 at least. As much as I’d like to think the “Hill” is focusing on getting our economy back on track, each party is really out for their agenda and will have little interest in working collectively and making a strong stand for a tax or cap-and-trade on CO2 emissions.
    While Dr. Stavins mentions the SO2 emissions cap-and-trade program was a success in the U.S. over time, that was a NATIONAL effort. We are currently playing “small ball” in the minors with California and while it is a step toward first base, there’s great potential for free-riding and “leakage” challenges to tag us out before we can get back into the major leagues with the federal government.

  41. Kimberly Cesafsky

    Stavins’ blog entry about pricing carbon was particularly interesting to me as a relatively new student of environmental economics. Most of my prior knowledge about climate change policy has come from reading the news as a layperson. As an environmentalist, I was very excited about the prospect of the much-debated and heavily-publicized climate change carbon cap-and-trade policy that ultimately failed to pass in the U.S. Senate, and I definitely agree with Stavins’ comment that the failure of this policy was “collateral damage” in a much larger political polarization war. This leads me to skepticism of California’s new cap-and-trade system. I think it is great that this new program is being implemented, but I wonder about its real impact. Actual effective climate change policy should be implemented on a global level. This leads me to the opinion that, given the current political and economic climate, market-based carbon reduction policies might not be the best plan, at least for now. It might be worthwhile for us to look into one of the myriad of other options Stavins brings forth in this entry.

  42. Jiemei

    We went to Yale last month to attend the Duke-Yale mock climate negotiation, which coincides with the date the far reaching decision was mad. Voted unanimously by California air resources board, The decision is to adopt formally the nation’s most comprehensive cap-and-trade system”

    As an active participant of the mock climate negotiation, I was moved by a ritual in the commencement.

    All of the representatives were asked to leave their seats and stand a big circle.We were asked to imagine facing the earth in space and imagine the countries and people who are suffering from the climate disaster.
    “Big decisions will be made today to reduce the suffering but that needs joint efforts.”
    Everyone is so engaged in the process as if it was real “. We gained satisfactory outcome and had promising projection on climate issues at the end of the day.
    However, the Real world doesn’t work as well as simulations.
    As mentioned in the blog, Compliance of the act will cover 85% of the state’s emissions.
    However, The cap-and-trade system won’t easily extend its effectiveness, which being proved in US and Europe, to other countries.
    Political wills in terms of commitments to reduce carbon emission and resources allocation among butter and gun, development and sustainability vary significantly. One fact that can’t be neglected is the immense gap between developed and developing world.
    A uniform standard might take years to come and even more years to implement while facing being abandoned in the dynamic and fast changing world.
    Besides,more work need to be done to redefine Annex I/ Annex II countries .
    Annex II countries right now, e.g. China, India and Brazil need to take active role by joining the commitment legally binding to all member countries of UNFCCC.
    It’s not because of the high possibility these countries going to surpass USA and Canada to become the biggest carbon emitters.but the opportunity cost being victims of “ emission leakage”.
    For example, if the new protocol doesn’t have legal binding towards China,more carbon intensive products will expected to produce there.
    People would then consume more cheap commodities with ‘MADE IN CHINA” and blame it for exacerbating climate change.

  43. Lukas Schmid

    Steven Cohen, the Executive Director of Columbia University’s Earth Institute, has pointed out at the 2010 GPPN Conference that federalism may be one of only two chances for any climate legislation if the U.S. (the other being Presidential power).
    In (the “Federal States of”) Europe and the EU, similarly, there have always been ‘leaders’ (e.g. Germany, the northern sStates) and ‘laggards’ (e.g. the southern states). When the ‘leaders’ demanded stricter environmental regulation fearing declining competitiveness for their economies in the single market, eventually more stringent rules came into being for all Member States. Obviously there was a lot of log-rolling and trading-off involved. Years on some of the ‘laggards’ are making good progress to become ‘leaders’ themselves (e.g. Spain in solar energy). Could such ‘push-pull’ (Sbragia 1998: 237) or ‘leader-laggard’ dynamic (Haas 1993: 138) –essentially “pulling” laggard states in –be a model for the U.S. or even globally?
    R. Daniel Kelemen and David Vogel have argued in a paper (2010) that such ‘push-pull’ dynamic or spill-over effect can take place beyond Europe as well: The U.S. was one of the strongest and most consistent supporters of international environmental treaties and agreements in the 1960 and early 1970 but then traded places and the leadership role with the EU since the 1990s –to a large extent due to a “regulatory politics model that synthesizes the effects of domestic politics and international regulatory competition”. U.S. companies subject to stricter regulation feared competitive disadvantages on international markets (compare political dynamics also to Andrew Moravcsik’s theory of liberal intergovernmentalism)
    As a conclusion, what seems crucial for progress on climate regulation is any kind of leader or leadership. Keeping in mind the outlined development of climate regulation in the past I shall therefore conclude this entry with a vision Professor Stavins has also alluded to in his blog: in order to make the dynamics even more powerful why not link the Californian market with the EU ETS or the Regional GHG initiative in the northeast United States and create a more comprehensive and powerful market that may eventually “pulls in” other states? For tackling climate change in a multipolar world transatlantic leadership may be more valuable than ever.

    _ _ _

    Haas, Peter M. 1993, Protecting the Baltic and North Seas, in: Haas, Peter M, Robert O. Keohane, and Marc A. Levy (eds.), Institutions for the Earth: Sources of Effective International Environmental Protection, MIT Press, Cambridge, Massachusetts, p. 133-182.

    Kelemen Daniel R., and David Vogel (2010): Trading Places: The Role of the United States and the European Union in International Environmental Politics, in: Comparative Political Studies 2010 43: 427.

    Sbragia, Alberta 1998, Environmental Policy: The ‘Push-Pull’ of Policy-Making, in: Wallace, Helen and William Wallace (eds.), Policy-Making in the European Union, Third Edition, Oxford: Oxford University Press, p. 235-255.

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