State Eyes on the Climate Policy Prize

• Author: Robert N. Stavins
• Position: Albert Pratt Professor of Business and Government at the John F. Kennedy School of Government, Harvard University, and Director of the Harvard Environmental Economics Program
• Pages: 16-16

Page 16 ❧ THE ENVIRONMENTAL FORUM Copyright © 2010, Environmental Law Institute®, Washington, D.C. www.eli.org.

Reprinted by permission from The Environmental Forum®, July/August 2010

By Robert N. Stavins

State Eyes on the

Climate Policy Prize

In May, Senators John Kerry and Joe

Lieberman released their American

Power Act of 2010, legislative compan-

ion to Representatives Henry Waxman

and Edward Markey’s American Clean

Energy and Security Act of 2009.

Both proposals feature cap-and-trade

systems at their heart, and constitute

the best remaining shot at addressing

climate change in the near future. But

there’s an issue brewing that could un-

dermine their ef‌fectiveness and drive

up their costs.

Government of‌f‌icials from Cali-

fornia, New York, and other states are

lobbying in Washington to retain their

existing state and regional systems for

reducing greenhouse gas emissions,

even after a federal system comes into

force. at would be a mistake — and

a potentially expensive one for resi-

dents of those states, who could wind

up subsidizing the rest of the country.

National climate legislation should

preempt state and regional cap-and-

trade systems. ere’s no risk, because

if federal legislation is not enacted, such

preemption will not take ef‌fect.

e regional systems — including

the Regional Greenhouse Gas Initia-

tive in the Northeast and Assembly

Bill 32 in California — seek to limit

carbon dioxide by making emissions

more costly for f‌irms and individuals.

ese systems were developed because

the federal government was not mov-

ing fast enough.

ough the Congress has typically

allowed states to act more aggressively

on environmental protection, this

makes no sense when it comes to cli-

mate change policy. For other, localized

environmental problems, California or

Massachusetts may wish to incur the

costs of achieving cleaner air or water

within their borders than required by

a national threshold. But with climate

change, it is impossible for regions,

states, or localities to achieve great-

er protection for their jurisdictions

through more ambitious actions.

is is because greenhouse gases

uniformly mix in the atmosphere — a

unit of carbon dioxide emitted in Cali-

fornia contributes just as much to the

problem as carbon dioxide emitted in

Tennessee. e overall magnitude of

damages — and their location — are

completely unaf‌fected by the location

of emissions. is means that for any

individual jurisdiction,

the benef‌its of action

will inevitably be less

than the costs. (is is

the same reason why

U.S. federal action on

climate change should

occur at the same time

as other countries take actions to re-

duce their emissions).

If federal climate policy comes into

force, the more stringent California

policy will accomplish no additional

reductions in greenhouse gases, but

simply increase the state’s costs and

subsidize other parts of the country.

is is because under a nationwide

cap-and-trade system, any additional

emission reductions achieved in Cali-

fornia will be of‌fset by fewer reductions

in other states.

A national cap-and-trade system —

which is needed to address emissions

meaningfully and cost-ef‌fectively —

will undo the ef‌fects of a more strin-

gent cap within any state or group of

states. RGGI, which covers only elec-

tricity generation and which will be less

stringent than the federal policy, will

be irrelevant once the federal system

comes into force.

In principle, a new federal policy

could allow states to opt out if they im-

plement a program at least as stringent.

But why should states want to opt out?

High-cost states will be better of‌f join-

ing the national system to lower their

costs. And states that can reduce emis-

sions more cheaply will be net sellers of

federal allowances.

is is certainly not to say that there

is no possible role for state and local

policies. Price signals provided by a na-

tional cap-and-trade system are neces-

sary to address climate change at sen-

sible cost, but other market failures call

for supplementary policies. Take, for

example, the principal-agent problem

through which despite higher energy

prices, both landlords and tenants lack

incentives to make economically ef‌f‌i-

cient energy-conservation investments,

such as installing insulation. is prob-

lem can be handled by state and local

authorities through regionally dif‌fer-

entiated building codes

and zoning.

But for the core of

climate policy — which

is carbon pricing —

the simplest, cleanest,

and best way to avoid

unnecessary costs and

unnecessary actions is for existing

state systems to become part of the

federal system. Political leaders across

the country would do well to follow

the progressive lead of Massachusetts

Governor Deval Patrick, who has pub-

licly supported RGGI preemption by a

meaningful national program.

California’s leaders and those in the

Northeast may take great pride in their

state and regional climate policies, but

if they accomplish their frequently-

stated goal — helping to bring about

the enactment of a meaningful national

climate policy — they will better serve

their states and the country by declar-

ing victory and getting out of the way.

Federal legislation

should preempt state

and regional cap-

and-trade systems

Ro ber t N . St avi ns is the Albert Pratt Profes-

sor of Business and Government at the John

F. Kennedy School of Government, Harvar d

University, and Dir ector of the Har vard En -

vironmental Economics Program. He can b e

reached at rob ert_stavins@har vard.edu.

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