by Robert Stavins.

California Gov. Jerry Brown plans to move forward with the implementation of Assembly Bill 32 (AB 32), the Global Warming Solutions Act, under which California seeks to take dramatic steps to reduce its greenhouse-gas emissions. Questions have been raised about the wisdom of a single state trying to address a global commons problem, but with national climate policy developments having slowed dramatically in Washington, California is now the focal point of meaningful U.S. climate policy action.

California’s plan

A key element of the mechanisms to be used for achieving California’s ambitious emissions reductions will be cap-and-trade, a promising approach with a successful track record, despite its recent demonization as “cap-and-tax” by conservatives and other opponents in the U.S. Congress.

Under this approach, regulators restrict emissions by issuing a
limited number of emission allowances, with the number of allowances ratcheted
down over time, thus assuring ever-larger reductions in overall
emissions. Pollution sources such as electric power plants and
factories are allowed to trade allowances, and as a result, sources able
to reduce emissions least expensively take on more of the
pollution-reduction effort. Experience has shown that cap-and-trade programs achieve emissions reductions at dramatically lower cost than conventional regulation.

Concerns

Yet some groups in California have been very uneasy about the prospect of cap-and-trade. In particular, the Environmental Justice movement has opposed this approach, citing concerns that it would hurt low-income communities. Professor Lawrence Goulder of Stanford University and I addressed such concerns in an article in The Sacramento Bee.

One expressed concern has been that a cap-and-trade policy might
increase pollution in low-income or minority communities. The
apprehension is not about greenhouse gases (the focus of AB 32), since these gases spread evenly around the globe
and thus would have no discernible impact in the immediate area. Rather, it’s about “co-pollutants,” such as nitrogen oxides, carbon monoxide, and particulates, which can be emitted alongside greenhouse gases.

Because a cap-and-trade system would reduce California’s overall
greenhouse-gas emissions, it would also lower the state’s emissions of
co-pollutants. Still, it’s possible, though unlikely,
that co-pollutant emissions would increase in a particular locality.
But here it’s crucial to recognize that existing air pollution laws
address such pollutants, and so any greenhouse-gas allowance trades that
would violate local air pollution limits would be prohibited.

If current limits for co-pollutants are thought to be insufficient,
the best response is not to scuttle a statewide system that can achieve
AB 32’s ambitious targets at minimum cost. Rather, the most
environmentally and economically effective way to address such pollution
is to revisit existing local pollution laws and perhaps make them more
stringent.

While much attention has rightly been given to the effects of
potential climate policies on environmental conditions in low-income
communities, it’s also important to consider their economic impacts
on these communities. Reducing greenhouse-gas emissions will require
greater reliance on more costly energy sources and more costly
appliances, vehicles, and other equipment. Because low-income households
devote greater shares of their income to energy and transportation
costs than do higher-income households, virtually any climate policy
will place relatively greater burdens on low-income households. But
because cap-and-trade will minimize energy-related and other costs, it
holds an important advantage in this regard over conventional
regulations.

Moreover, a cap-and-trade system gives the public a tool for
compensating low-income communities for the potential economic burdens:
If some emission allowances are auctioned, revenues can be used to
mitigate economic burdens on these communities.

The way forward

All in all, cap-and-trade serves the goal of environmental justice
better than the alternatives. This progressive policy instrument merits
a central place in the arsenal of weapons California employs. Beyond
helping the state meet its emissions-reduction targets at the lowest
cost, it offers a promising way to reduce economic burdens on low-income
and minority communities.