Poster for Emissions Leakage Report

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