Officials Reach Deal to Cut California Emissions:
California’s political leaders announced an agreement on Wednesday that imposes the most sweeping controls on carbon dioxide emissions in the nation, putting the state at the forefront of a broad campaign to curb the man-made causes of climate change despite resistance in Washington.
The deal between the Democratic-controlled Legislature and the Republican governor, Arnold Schwarzenegger, calls for a 25 percent reduction in carbon dioxide emissions by 2020, and could establish controls on the largest industrial sectors, including utilities, oil refineries and cement plants. The state has already placed strict limits on automobile emissions, although that move is being challenged in federal court.
The Bush administration has rejected the idea of similar national controls on carbon dioxide emissions, and efforts to get Congressional approval for such firm caps on emissions have repeatedly been defeated.
There are two big economic issues.
The first is the concern that business firms will leave high regulatory cost California and relocate their factories in "pollution havens" elsewhere, much like the effect of state air and water quality regulations before they were federalized in the 1970s:
The first major controls are scheduled to begin in 2012, with the aim of reducing the emissions to their level in 1990. The legislation allows for incentives to businesses to help reach the goals, but opponents warn that the state may be sacrificing its economic interests for a quixotic goal.
“If our manufacturers leave, whether for North Carolina or China, and they take their greenhouse gases with them, we might not have solved the problem but exacerbated it instead,” said Allan Zaremberg, the president of the state’s Chamber of Commerce.
North Carolina is a pollution haven? Don't we have a legislative commission looking at state-level climate change options?
The second issue is the design of the policy. Details in the NYTimes are sketchy, but it sounds like the policy involves tradeable emissions credits, the darling of environmental economists (emphasis added):
Peter Darbee, the chairman and chief executive of Pacific Gas and Electric, broke with his industry as PG&E became the first and possibly only major utility in the state to support the legislation, called the Global Warming Solutions Act.
“The issue of climate change is important and needs to be dealt with,” Mr. Darbee said. “We need a pragmatic and practical result. Since the bill has a market-based program, it will work efficiently and effectively for businesses.”
In short, if it costs you a lot to reduce your CO2 then you can buy permits on the open market at a cost below your abatement cost. If it doesn't cost you a lot to reduce your CO2 then you can sell your permits. Both types of firms, high and low cost abaters, are better off than in a command and control system. Both types of firms are also better off with trading than with a carbon tax.
