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Emissions Leakage: California Greenhouse Gas Cap and Trade Program
- 1. Emissions Leakage: Who Pollutes Under A Pollution Cap? In 2006 the California Global Warming Solutions Act passed, appointing the Air Resources Board as lead agency to implement a reduction in GHG emissions back to 1990 levels by 2020 – a 15% decrease. The Air Resources Board is doing this by developing a cap and trade program for greenhouse gases. Cap and trade poses the risk of emissions leakage: an economy that will reduce domestic production in the area regulated, then export goods back into the area (ARB 2012) ARB distribution of allowances seen below: How effective is the program when trade sensitive firms are being given free allowances to lower abatement and compliance costs? Solutions: -Border Tax: Tax imported energy so there is less incentive to export production in order to avoid the pollution cap (Parlar et al 2012). **Commerce Clause “limits states’ ability to impose burdens on interstate commerce” and Border taxes may not be legal (Parlar et al 2012). -Perhaps California ought to decrease consumption (therefore emissions) from the bottom up (downstream rather than upstream regulation) (Hackett 2011) . It seems that leakage poses such a threat in California under AB32 because of the NIMBY attitude that seems prevalent in California concerning issues such as as emissions and who pollutes. However, it seems that decreasing demand (downstream regulation of consumption) is much more costly than regulating the supply (upstream regulation of firms) at the margin, so regulating emissions is generally done through upstream regulation. (Hackett 2011) Background: Sources: Air Resources Board. (2014). Assembly Bill 32 Overview. Accessed 16 Nov 2014. Retrieved from California Environmental Protections Agency Air Resources Board Website: http://www.arb.ca.gov/cc/ab32/ab32.htm : Hackett, S.C. (2011). Environmental and Natural Resource Economics: Theory, Policy and the Sustainable Society. (4th ed). Armonk, N.Y., & London, England: M.E. Sharpe. Parlar, E., & Babakitis, M., & Welton, S. (2012). Legal Issues in Regulating Imports in State and Regional Cap and Trade Programs. Columbia Law School, Center for Climate Change Law, p. 1-55. Alexa Kandaris