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This is an Open Access article. You will receive access to the full text.

Leakage from sub-national climate policy: The case of California’s cap–and–trade program

Open Access Article

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%.

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Energy Specializations: Energy and the Environment; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation; Energy and the Economy

JEL Codes:
Q51 - Valuation of Environmental Effects
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q43 - Energy and the Macroeconomy

Keywords: Climate policy, Cap-and-trade, California, Electricity imports, Resource shuffling, Computable general equilibrium, State-level climate policy, Border effect

DOI: 10.5547/01956574.36.2.8

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Published in Volume 36, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.