Assessing Potential Impacts of CA Climate Policies

Principal Todd Schatzki and Harvard University professor and Analysis Group affiliate Rob Stavins have authored a series of white papers exploring the economic and regulatory impacts of a suite of climate policies being undertaken in California, a state that many consider a test bed for potential climate policies to be adopted in other parts of the United States and in other countries. Having taken aggressive steps to reduce its emissions to 1990 levels by the year 2020, California is in the process of considering possible next steps for the state's climate policy beyond the 2020 emission target mandated in the Global Warming Solutions Act of 2006 (AB 32).

• In the white paper “Key Issues Facing California's GHG Cap-and-Trade System for 2021-2030” (July 2018), Dr. Schatzki and Professor Stavins address issues related to the design of and possible changes to the cap-and-trade program mandated by amendments to the California Global Warming Solutions Act of 2006 (also known as AB 398). They find that the social cost of carbon is the key economic consideration for price-setting purposes, and that the debate concerning overallocation would be best served by continuing to focus on cumulative emissions goals, rather than annual targets.
• In the white paper "Beyond AB 32: Post-2020 Climate Policy for California" (January 7, 2014), Dr. Schatzki and Professor Stavins identified and assessed the key international, national, and in-state realities facing California in going beyond these 2020 targets. On an international level, they considered challenges for California to have a meaningful impact on global climate change, including the state's small share (less than one percent) of global greenhouse gas (GHG) emissions and hurdles the international community must overcome to achieve consensus on meaningful emission targets. On a state level, they considered key criteria for new policies to achieve international and in-state environmental goals, while minimizing economic consequences.
• In "Three Lingering Design Issues Affecting Market Performance in California's GHG Cap-and-Trade Program" (January 29, 2013), Dr. Schatzki and Professor Stavins examined three issues in the design of this program -- emissions offsets, allowance holding rules, and the allowance reserve -- and showed how failing to address these issues could lead to avoidable economic risks and costs in the future.
• In "Implications of Policy Interactions for California's Climate Policy" (August 27, 2012), Dr. Schatzki and Professor Stavins analyzed the interactions among different elements of California's AB 32 climate policy, as well as the interactions between AB 32 and existing federal policy. They laid out the general principles affecting these interactions and illustrated how overlapping state and federal policies may simply raise costs while creating few (or no) environmental benefits.
• In "Using the Value of Allowances from California's GHG Cap-and-Trade System" (August 27, 2012), Dr. Schatzki and Professor Stavins explored the challenges and opportunities California faces when allocating allowances for the AB 32 GHG cap-and-trade program. The researchers considered the state's opportunities to use auction revenues more efficiently, as well as the legal risks posed by many of those uses. They also considered the state's options for more effectively using the value of its allowances, including introducing new legislation to relax legal restrictions.
• Separately, Dr. Schatzki wrote the white paper "Can Options for Cost Containment Raise Costs?" (May 2012), which focused on "allowance reserves" -- an instrument designed to relax the stringency of an emissions cap when the cost of achieving emission-reduction goals becomes unexpectedly high. Dr. Schatzki analyzed the allowance reserves policy adopted in California's GHG cap-and-trade program, the first such policy included in a cap-and-trade system. He found that implementing enhancements to the allowance reserves policy can reduce the risk of potential cost increases while still ensuring lower GHG emissions.