Leackage from Sub-national Climate Initiatives: The Case of California
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MITJPSPGC_Rpt220.pdf
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Author(s)
Caron, Justin
Rausch, Sebastian
Winchester, Niven
Date Issued
May 29, 2012
Publisher
MIT Joint Program on the Science and Policy of Global Change
Citation
JP Report 220
Series/Report no.
Joint Program Report Series;220
Abstract
With federal policies to curb greenhouse gas emissions in the U.S. stagnating, California has taken action
on its own. We estimate the impact of California’s cap-and-trade program on the leakage of emissions to
other regions using a calibrated general equilibrium model. Sub-national policies can lead to high leakage
rates as state economies are generally closely connected to other economies, including integration of
electricity markets. Measures that will prevent leakage from California’s cap-and-trade program include
requiring permits to be surrendered for emissions embodied in imported electricity and legislation banning
“resource shuffling”. Under a cap-and-trade policy without measures to reduce leakage, the price of
emission permits is $12 per ton of CO2 and emissions in other regions increase by 46% of the reduction
in emissions in California. When imported electricity is included in the program and resource shuffling is
banned, the carbon price is $65, there is negative leakage to regions exporting electricity to California,
positive leakage to other regions and the overall leakage rate is 2%. We conclude that although there is
potential for large increases in emissions elsewhere due to California’s cap-and-trade policy, enforcement
of requirements for imported electricity will be effective at curtailing leakage.
Description
http://globalchange.mit.edu/research/publications/2286
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