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Interactions between State and Federal Climate Change Policies

Author

Listed:
  • Lawrence H. Goulder

    (Stanford University National Bureau of Economic Research Resources for the Future)

  • Robert N. Stavins

    (John F. Kennedy School of Government, Harvard University, Resources for the Future National Bureau of Economic Research)

Abstract

Federal action addressing climate change is likely to emerge either through new legislation or via the U.S. EPA’s authority under the Clean Air Act. The prospect of federal action raises important questions regarding the interconnections between federal efforts and state-level climate policy developments. In the presence of federal policies, to what extent will state efforts be cost-effective? How does the co-existence of state- and federal-level policies affect the ability of state efforts to achieve emissions reductions? This paper addresses these questions. We find that state-level policy in the presence of a federal policy can be beneficial or problematic, depending on the nature of the overlap between the two systems, the relative stringency of the efforts, and the types of policy instruments engaged. When the federal policy sets limits on aggregate emissions quantities, or allows manufacturers or facilities to average performance across states, the emission reductions accomplished by a subset of U.S. states may reduce pressure on the constraints posed by the federal policy, thereby freeing facilities or manufacturers to increase emissions in other states. This leads to serious “emissions leakage” and a loss of cost-effectiveness at the national level. In contrast, when the federal policy sets prices for emissions or does not allow manufactures to average performance across states, these difficulties are usually avoided. Even in circumstances involving problematic interactions, there may be other attractions of state-level climate policy. We evaluate a number of arguments that have been made to support state-level climate policy in the presence of federal policies, even when problematic interactions arise.

Suggested Citation

  • Lawrence H. Goulder & Robert N. Stavins, 2010. "Interactions between State and Federal Climate Change Policies," Working Papers 2010.98, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2010.98
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    References listed on IDEAS

    as
    1. Lawrence H. Goulder & Ian W.H. Parry & Roberton C. Williams III & Dallas Burtraw, 2002. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 27, pages 523-554, Edward Elgar Publishing.
    2. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90, National Bureau of Economic Research, Inc.
    3. Elinor Ostrom, 2014. "A Polycentric Approach For Coping With Climate Change," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 97-134, May.
    4. Lawrence Goulder & Mark Jacobsen & Arthur van Benthem, "undated". "Unintended Consequences from Nested State & Federal Regulations: The Case of the Pavley Greenhouse-Gas-per-Mile Limits," Discussion Papers 08-049, Stanford Institute for Economic Policy Research.
    5. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2009. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 106-146, February.
    6. Goulder, Lawrence H. & Jacobsen, Mark R. & van Benthem, Arthur A., 2012. "Unintended consequences from nested state and federal regulations: The case of the Pavley greenhouse-gas-per-mile limits," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 187-207.
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    8. Lawrence H. Goulder & Mark R. Jacobsen & Arthur A. van Benthem, 2009. "Unintended Consequences from Nested State & Federal Regulations: The Case of the Pavley Greenhouse-Gas-per-Mile Limits," NBER Working Papers 15337, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Zhang, Zhong Xiang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," International Review of Environmental and Resource Economics, now publishers, vol. 6(3), pages 225-287, December.
    2. Reinhard Steurer & Christoph Clar, 2015. "Is decentralisation always good for climate change mitigation? How federalism has complicated the greening of building policies in Austria," Policy Sciences, Springer;Society of Policy Sciences, vol. 48(1), pages 85-107, March.
    3. Lawrence H. Goulder & Robert N. Stavins, 2011. "Challenges from State-Federal Interactions in US Climate Change Policy," American Economic Review, American Economic Association, vol. 101(3), pages 253-257, May.
    4. Juan Casado-Asensio & Reinhard Steurer, 2016. "Mitigating climate change in a federal country committed to the Kyoto Protocol: how Swiss federalism further complicated an already complex challenge," Policy Sciences, Springer;Society of Policy Sciences, vol. 49(3), pages 257-279, September.
    5. Abito, Jose Miguel & Knittel, Christopher R. & Metaxoglou, Konstantinos & Trindade, André, 2022. "The role of output reallocation and investment in coordinating environmental markets," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    6. Galarraga, Ibon & Abadie, Luis M. & Ansuategi, Alberto, 2013. "Efficiency, effectiveness and implementation feasibility of energy efficiency rebates: The “Renove” plan in Spain," Energy Economics, Elsevier, vol. 40(S1), pages 98-107.
    7. Holladay, J. Scott & Price, Michael K. & Wanamaker, Marianne, 2015. "The perverse impact of calling for energy conservation," Journal of Economic Behavior & Organization, Elsevier, vol. 110(C), pages 1-18.
    8. Robert N. Stavins, 2011. "The Problem of the Commons: Still Unsettled after 100 Years," American Economic Review, American Economic Association, vol. 101(1), pages 81-108, February.
    9. Marcel J. Dorsch & Christian Flachsland, 2017. "A Polycentric Approach to Global Climate Governance," Global Environmental Politics, MIT Press, vol. 17(2), pages 45-64, May.
    10. Stowe, Robert C & Stavins, Robert Norman & Chan, Gabriel Angelo & Sweeney, Richard Leonard, 2012. "The SO2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation," Scholarly Articles 8160721, Harvard Kennedy School of Government.
    11. Giulia Gadani & Ibon Galarraga & Elisa Sainz de Murieta, 2019. "Regional climate change policies: An analysis of commitments, policy instruments and targets," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 0(2), pages 49-74.
    12. Extension Faculty & Staff, 2010. "New York Economic Handbook, 2011," EB Series 121656, Cornell University, Department of Applied Economics and Management.
    13. Arik Levinson, 2011. "Comment on "Interactions between State and Federal Climate Change Policies"," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 122-125, National Bureau of Economic Research, Inc.
    14. Lang, Corey & Okwelum, Edson, 2015. "The mitigating effect of strategic behavior on the net benefits of a direct load control program," Energy Economics, Elsevier, vol. 49(C), pages 141-148.
    15. Anandarajah, Gabrial & McDowall, Will, 2012. "What are the costs of Scotland's climate and renewable policies?," Energy Policy, Elsevier, vol. 50(C), pages 773-783.
    16. Hannum, Christopher & Cutler, Harvey & Iverson, Terrence & Keyser, David, 2017. "Estimating the implied cost of carbon in future scenarios using a CGE model: The Case of Colorado," Energy Policy, Elsevier, vol. 102(C), pages 500-511.
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    18. M. Gallastegui & M. González-Eguino & I. Galarraga, 2012. "Cost effectiveness of a combination of instruments for global warming: a quantitative approach for Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 3(1), pages 111-132, March.
    19. Seunghwan Oh & Dongnyok Shim & Daeho Lee, 2017. "Evaluation Of Complementarity Effect Of Innovation Policies: Venture Certification And Inno-Biz Certification In Korea," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(02), pages 385-402, February.
    20. Reinhard Steurer & Christoph Clar & Juan Casado‐Asensio, 2020. "Climate change mitigation in Austria and Switzerland: The pitfalls of federalism in greening decentralized building policies," Natural Resources Forum, Blackwell Publishing, vol. 44(1), pages 89-108, February.
    21. Christopher Hannum, 2023. "Effect of Natural Gas Prices on Renewable Portfolio Standard Impacts," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 391-403, March.

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    More about this item

    Keywords

    Global Climate Change; Federalism; Cap-And-Trade; Carbon Tax; Regulation;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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