GHG Cap-and-Trade: Implications for Effective and Efficient Climate Policy in Oregon

Oregon is contemplating the adoption of a greenhouse gas (GHG) cap-and-trade system. For example, Senate Bill 1507, also known as Oregon’s Clean Energy Jobs bill, would create a GHG cap-and-trade system for major sources of GHG emissions. The GHG cap-and-trade system would add to the existing policies Oregon has adopted to address climate change and other environmental impacts from energy use. Like many other states, Oregon has begun to pursue climate policies to attempt to fill the gap created by the lack of effective climate policy at the Federal level.In this paper, we evaluate Oregon’s proposed GHG cap-and-trade system and consider its implications for other climate policies Oregon has already adopted. Section I starts by discussing the benefits of cap-and-trade as an approach to addressing climate change. In Section II, we discuss “complementary” policies states are developing to address GHG emissions. Under certain conditions, such additional policies can improve environmental and economic outcomes. However, due to interactions between policies, some complementary policies raise costs and fail to achieve emission reductions. We identify the conditions that lead to these different outcomes, and discuss how the particular policies currently in place in Oregon would interact with the addition of a GHG cap-and-trade system. In Section III, we analyze certain climate policies in California to identify the impacts of interactions that Oregon might expect from its suite of policies. In particular, we examine California’s Low Carbon Fuel Standard (LCFS), including its interactions with California’s GHG cap-and-trade system.