Common Tragedies

Thoughts on Environmental Economics

Californians might prefer Weggie to AB 32

Posted by Rich Sweeney on December 13, 2007


California may decline to pursue its own greenhouse gas (GHG) emissions cap-and-trade program and focus instead on helping to establish a broader Western region program, according to stakeholders and officials…..

Beyond the potential preference to delay their own program and merge with the WCI , sources say California regulators are becoming extremely frustrated with efforts to draft an emissions cap-and-trade program for the electricity sector. That effort, going on for almost two years at the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC), has been extremely complex and riddled with opposing viewpoints by power generators, utilities, environmentalists, energy brokers, regulators in nearby states and other interests.

The news that California might prefer to wait for the Western Climate Initiative (affectionately known around my office as Weggie, after it’s east coast counterpart) should come as no real surprise to anyone who’s been following the issue. In addition to fierce debates about the economic implementation and equity implications of the program (click here for an example), some complications have emerged to which no side claims to have an adequate solution. One such complication is “leakage”, and it would be a much smaller problem under a broader regional system.

Leakage occurs when regulation of carbon emitters in one region has the perverse effect of increasing output from carbon emitters in another region. The end result is to effectively penalize producers in one region while having very little impact on total carbon emissions. In this particular example, leakage is possible because California imports an enormous amount of electricity but can only regulate the emissions of generators within its borders. Extending the area covered by the emissions cap would alleviate this problem somewhat, although Weggie as a whole will probably still be a net importer. In my opinion this is just one of many costs of a federalist approach to environmental regulation. Unfortunately, looking at today’s news from Bali and the Senate floor, some sort of Reggie, Meggie, Weggie merger might be the only hope we have of curbing these costs in the future.

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