What Hath California Wrought?

Has California climate policy succeeded? Yes, but it’s complicated.

California’s climate policy have been a success, but quantifying the effects is complicated. It’s harder than it might seem to determine whether a climate regulation has succeeded. California has clearly hit or exceeded its target for overall carbon emissions reductions under its method of carbon accounting. But if we ask how much global emissions are lower now (or will be lower in the future) because of California, that metric is harder to assess.

It does seem pretty clear that emissions within the state’s borders are lower than they would have been if you held everything constant except California climate policy. Total emissions from California power generators were pushed up due to the use of natural gas to replace nuclear power from unsafe plants, but then pushed back by elimination of coal and expansion in the use of renewables. Car emissions within California are lower than they would otherwise have been due to restrictions on greenhouse gas emissions, which California adopted on its own and then harmonized with federal restrictions under the Obama Administration. (The Trump Administration, of course, is attempting to undo this progress.) There have also been important reductions in emissions of greenhouse gases other than CO₂ in California.

It’s also clear that California has been a source of leadership and guidance. Its actions have gotten a lot of attention, from Arnold Schwarzenegger’s meeting with the British Prime Minister to Jerry Brown’s with the Chinese President. That has helped encourage the global effort in an era when the U.S. government’s stance has been very mixed. Moreover, in implementing its policies, California has gained a lot of expertise on issues like how to design an emissions trading system, and there has been a constant flow of information out to other jurisdictions that are designing their own climate policies. California has also played a role in encouraging technological innovation and lower production costs, although it’s hard to separate its impact from those of other jurisdictions like Germany. These “soft” benefits of California policy may turn out in the end to be the most important.

Direct effects on emissions outside California are harder to measure with confidence. California power companies now source their electricity from considerably cleaner sources outside of California. But there’s controversy over the extent of the effects? How much has that impacted actual emissions, versus reshuffling sales from the same generators between California and other states? The question can be asked about California’s low carbon fuel mandate: has the mandate increased the total use of low carbon fuel nationally or just reallocated existed fuel production to different destinations? There’s particular debate about the extent to which California’s carbon trading system has really reduced emissions and how much it will do so in the future, something I hope to write more about later. The upshot of all this is that it is not easy to be certain of the net impact of these specific California policies on U.S. emissions.

On the other hand, it seems clear that California’s ambitious renewable energy mandate has resulted in a lot of new renewable generation both inside and outside the state. There just hasn’t been enough existing renewable capacity to meet the mandate. Thus, in terms of direct impacts on emissions, this policy has to be considered a success. It is also easy to see the impact of California’s standards for vehicles to date. Up until 2020, at least, they have been similar to the national standards set by the Obama Administration, so we don’t have to worry that cars were just switched to different markets. Pressure from California was also important in getting the car companies to agree to the national standards in the first place in order to avoid having two very different standards to meet in different states.

I would draw three conclusions from this. First, California clearly has made an important contribution to the global effort to reduce carbon emissions. Second, the extent of that contribution can only be partly quantified and is partly indirect. And third, this is another reason to take cost-benefit analysis of climate policies with a grain of salt.

One Reply to “What Hath California Wrought?”

There is a lot more analysis and evidence that could be cited that lead to very different conclusions:

1. There is little causality between the numerous climate programs and emissions; the predominant cause of emission reductions has been the economy.
2. The complex, opaque and administratively burdensome and more expensive regulatory and cap and trade policies are not a good fit in developing countries with weak institutions and serious corruption;
3. California’s real comparative advantages—innovation and technology development—are given short shrift by the misplaced highlighting of the climate policies.

What have the data and analyses shown?

-Emissions data: Available data should be mentioned. They show that transportation and industry emissions resist reduction and transportation emissions are increasing. Comparing emissions to Business As Usual (BAU) guesstimates is no longer sufficient. The emissions reductions from the electricity sector come predominantly from outside the state and, as noted in the article, are likely greatly influenced by resource shuffling (see Cullenwald) ignored by the ARB.

-Causality of emissions?: Reductions are widely recognized to have been driven by the 2008 economic recession (and shift in economic structure from fossil intensive industrial activity to less carbon intensive electricity based services, media and technology) (see Borenstein; Stavins; Cambridge Energy Research Associates and Grantham Institute). This applies as well to the Regional Greenhouse Gas Initiative (RGGI) in New England and the EU Emissions Trading System EU ETS) cap and trade programs which have shown surplus allowances and low carbon prices.

-Inherent flaws of Cap and Trade: There is no mention of the long-standing false narrative of “complementary” regulatory policies. Key regulatory policies cited as successes in the blog counteract cap and trade (Independent Emissions Market Advisory Committee (IEMAC) Annual Report 2018) by lowering emissions (somewhat) and creating surplus allowances lower prices hovering around the floor (with high likelihood they will remain there through at least 2025—see Borenstein and LAO). This is found in the RGGI and EU ETS as well. Note that cap and trade advocates are now shifting from the term complementary to “companion.”

-Equity: It is surprising that no mention of the inequity of the California climate program was mentioned. The clean energy subsidy programs were analyzed in painstaking detail (Borenstein, Davis NBER WP 21437) and showed that the bottom three quintiles received 10% of the tax subsidies and the upper quintile 60%. The most extreme was for electric vehicles where the upper quintile received 90% of the benefits. The Environmental Justice Advisory Committee to the ARB took the position that cap and trade should be dropped due to its ineffectiveness related to impacted communities and replaced by a fee and dividend policy combined with targeted regulations. The subsequent legislative mandate to distribute up to 60% of revenues will reach relatively few of the 12 million lower income households.

Meeting the Targets: The claim that California met its targets four years early rings hollow. It relates to the fact that target setting is inherently flawed (see Wara Michigan Journal of Environmental and Administrative Law) in cap and trade. California, RGGI and the EU all confirm this.

Conclusion: The experience with sub-national policies and cap and trade is sufficient at this point to conclude that a national policy of a carbon fee and full household dividend make sense as recommended by 3500+ economists (see http://www.econstatement.org). The California legislature resolution calling for a revenue neutral carbon fee and dividend is the path forward.

Comments are closed.

Reader Comments

Robert Archer says:

September 12, 2019 at 8:16 am

There is a lot more analysis and evidence that could be cited that lead to very different conclusions:

1. There is little causality between the numerous climate programs and emissions; the predominant cause of emission reductions has been the economy.
2. The complex, opaque and administratively burdensome and more expensive regulatory and cap and trade policies are not a good fit in developing countries with weak institutions and serious corruption;
3. California’s real comparative advantages—innovation and technology development—are given short shrift by the misplaced highlighting of the climate policies.

What have the data and analyses shown?

-Emissions data: Available data should be mentioned. They show that transportation and industry emissions resist reduction and transportation emissions are increasing. Comparing emissions to Business As Usual (BAU) guesstimates is no longer sufficient. The emissions reductions from the electricity sector come predominantly from outside the state and, as noted in the article, are likely greatly influenced by resource shuffling (see Cullenwald) ignored by the ARB.

-Causality of emissions?: Reductions are widely recognized to have been driven by the 2008 economic recession (and shift in economic structure from fossil intensive industrial activity to less carbon intensive electricity based services, media and technology) (see Borenstein; Stavins; Cambridge Energy Research Associates and Grantham Institute). This applies as well to the Regional Greenhouse Gas Initiative (RGGI) in New England and the EU Emissions Trading System EU ETS) cap and trade programs which have shown surplus allowances and low carbon prices.

-Inherent flaws of Cap and Trade: There is no mention of the long-standing false narrative of “complementary” regulatory policies. Key regulatory policies cited as successes in the blog counteract cap and trade (Independent Emissions Market Advisory Committee (IEMAC) Annual Report 2018) by lowering emissions (somewhat) and creating surplus allowances lower prices hovering around the floor (with high likelihood they will remain there through at least 2025—see Borenstein and LAO). This is found in the RGGI and EU ETS as well. Note that cap and trade advocates are now shifting from the term complementary to “companion.”

-Equity: It is surprising that no mention of the inequity of the California climate program was mentioned. The clean energy subsidy programs were analyzed in painstaking detail (Borenstein, Davis NBER WP 21437) and showed that the bottom three quintiles received 10% of the tax subsidies and the upper quintile 60%. The most extreme was for electric vehicles where the upper quintile received 90% of the benefits. The Environmental Justice Advisory Committee to the ARB took the position that cap and trade should be dropped due to its ineffectiveness related to impacted communities and replaced by a fee and dividend policy combined with targeted regulations. The subsequent legislative mandate to distribute up to 60% of revenues will reach relatively few of the 12 million lower income households.

Meeting the Targets: The claim that California met its targets four years early rings hollow. It relates to the fact that target setting is inherently flawed (see Wara Michigan Journal of Environmental and Administrative Law) in cap and trade. California, RGGI and the EU all confirm this.

Conclusion: The experience with sub-national policies and cap and trade is sufficient at this point to conclude that a national policy of a carbon fee and full household dividend make sense as recommended by 3500+ economists (see http://www.econstatement.org). The California legislature resolution calling for a revenue neutral carbon fee and dividend is the path forward.