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The effect of cap-and-trade on sectoral emissions: Evidence from California

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  • Lessmann, Christian
  • Kramer, Niklas

Abstract

We study the impact of California’s cap-and-trade system on carbon emissions in the electricity and industrial sectors. We use US state-level panel data covering the period 2005–2019 and apply the synthetic control method to construct an optimal counterfactual for per capita emissions in each sector. In our experiment, emissions in the power sector fall below counterfactual emissions by 48%. In the industrial sector, the state’s emissions are 6% higher than those of the synthetic control unit by the end of the observation period. Thus, cap-and-trade failed to deliver decarbonization across both sectors. While the abatement in the power sector was facilitated by complementary policies and driven by a switch from natural gas to renewables, California’s policy mix has disincentivized emission reductions in the industrial sector.

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  • Lessmann, Christian & Kramer, Niklas, 2024. "The effect of cap-and-trade on sectoral emissions: Evidence from California," Energy Policy, Elsevier, vol. 188(C).
    • Handle: RePEc:eee:enepol:v:188:y:2024:i:c:s0301421524000867
    DOI: 10.1016/j.enpol.2024.114066
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    More about this item

    Keywords

    Cap-and-trade; Carbon pricing; Climate policy; Effectiveness; Synthetic control method;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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