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Leakage from Sub-national Climate Policy: The Case of California’s Cap-and-Trade Program

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  • Justin Caron
  • Sebastian Rausch
  • Niven Winchester

Abstract

With federal policies to curb carbon emissions stagnating in the U.S., California is taking action alone. Sub-national policies can lead to high rates of emissions leakage to other regions as state-level economies are closely connected, including integration of electricity markets. Using a calibrated general equilibrium model, we estimate that California’s cap-and-trade program without restrictions on imported electricity increases out-of-state emissions by 45% of the domestic reduction. When imported electricity is included in the cap and “resource shuffling†is banned, as set out in California’s legislation, emissions reductions in electricity exporting states partially offset leakage elsewhere and overall leakage is 9%.

Suggested Citation

  • Justin Caron & Sebastian Rausch & Niven Winchester, 2015. "Leakage from Sub-national Climate Policy: The Case of California’s Cap-and-Trade Program," The Energy Journal, , vol. 36(2), pages 167-190, April.
    • Handle: RePEc:sae:enejou:v:36:y:2015:i:2:p:167-190
    DOI: 10.5547/01956574.36.2.8
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    References listed on IDEAS

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    1. Burniaux, Jean-Marc, 2001. "International Trade and Investment Leakage Associated with Climate Change Mitigation," Conference papers 330902, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Hertel, Thomas & Hummels, David & Ivanic, Maros & Keeney, Roman, 2007. "How confident can we be of CGE-based assessments of Free Trade Agreements?," Economic Modelling, Elsevier, vol. 24(4), pages 611-635, July.
    3. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
    4. Cassey, Andrew, 2006. "State export data: origin of movement vs. origin of production," MPRA Paper 3352, University Library of Munich, Germany.
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    Cited by:

    1. Fell, Harrison & Manilo, Peter, 2015. "Benecial Leakage: The Eect of the Regional Greenhouse Gas Initiative on Aggregate Emissions," CEnREP Working Papers 340064, North Carolina State University, Department of Agricultural and Resource Economics.

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