By Penni Takade*
California’s ambitious cap and trade program for greenhouse gases (GHG) began operations in 2013. The program is one of the centerpieces of the state’s climate mitigation plans. As with any major initiative, there are obstacles and weaknesses that can defeat or diminish the fulfillment of the state’s plans. California recently survived a legal challenge brought by environmental justice advocates, which alleged that the cap and trade program could be inadequate and have a disparate impact on more vulnerable communities. Although California was successful in this suit, there are legitimate weaknesses in the cap and trade program, which exacerbate socio-economic inequalities and risk diminished effectiveness.
Overtopping Embarcadero, San Francisco, during king tide. Courtesy California Coastal Commission, Photo © Mike Filippoff
This note discusses two key weaknesses that could undermine the achievement of the state’s ambitious GHG emissions reduction goals. The first weakness is the process of allocation for GHG allowances to regulated firms. Under California’s allocation process, cap and trade will exacerbate economic inequities and raise the total cost of the program. A new lawsuit threatens to increase those inequities and costs to the state, if successful.
The second weakness is counterintuitive: cap and trade programs do not induce technological innovation, yet California requires significant technological innovation to achieve emissions reductions goals. Section III.C. discusses the market failures in cap and trade, which preclude serious inducement of technological innovation. That section goes on to specify what California must do to correct these failures in pursuit of that innovation. When used in combination with the cap and trade program, these strategies will increase the effectiveness of California’s overall climate change mitigation plans.