You know this already, but let’s review:
- Climate change is a global emissions problem.
- California produces about 1% of the world’s greenhouse gas emissions.
- Over the next few decades, the majority of emissions will come from developing countries.
- If we don’t solve the problem in the developing world, we don’t solve the problem.
- The world is making negative progress on climate change. Evidence of the potential for drastic climate change is growing, but worldwide GHG emissions and concentrations of GHGs in the atmosphere are still rising. Exxon’s just-released Energy Outlook, predicts world oil consumption will rise 19% over the next 25 years, while natural gas will rise 66%, and coal will be flat, no decline.
Nearly all of this was known back in 2006, when California passed the Global Warming Solutions Act, though the massive growth in China’s coal consumption was just getting momentum. Back then, the argument for California emissions targets was “leadership” and that is still the word one hears most often from defenders of the state’s current package of GHG markets and mandates.
I’ve heard many different meanings of leadership in the context of California emissions targets:
- Showing that the regulations and cap & trade market are logistically feasible, and developing implementation models that could be adopted at national and international levels
- Showing that people are willing to sacrifice or change their way of life to fight climate change
- Showing that people won’t have to sacrifice because reducing GHGs will improve the economy
- Recognizing that someone has to move first to start a worldwide movement to reduce GHGs
There is something to each of these arguments (well, maybe not #3. Most economists think addressing climate change will be a small drag on the economy—if you don’t count the worldwide economic value of averting climate change).
But it’s 2014 now. The U.S. is further from adopting a price on GHG emissions than it was in 2006. Fewer members of Congress than 8 years ago even believe climate change is a problem. The three largest market mechanisms for reducing GHGs (California’s cap-and-trade, the EU-ETS, and the eastern U.S. RGGI program for utility emissions) all have very low prices that are doing little to change the course of emissions.
For these reasons, I think it’s time to have a frank review of California’s climate policy. We need to refocus on how California can realistically contribute to solving the problem of global climate change. Reaching emissions targets for California may be part of that strategy, but that should not be the singular or even the primary goal.
The primary goal of California climate policy should be to invent and develop the technologies that can replace fossil fuels, allowing the poorer nations of the world – where most of the world’s population lives – to achieve low-carbon economic growth. If we can do that, we can avert the fundamental risk of climate change. If we don’t do that, reducing California’s carbon footprint won’t matter.
Focusing on solving global climate change would mean that a major test of any policy proposal would be whether it is exportable to the developing world. It’s always hard to predict what will work, but “working” in California isn’t particularly valuable if the approach doesn’t work where most of the planet’s emissions will be coming from in the 21st century. GHG-reduction strategies that are very expensive – but bearable for a rich country – only make sense if they have a plausible path for getting to near cost competitiveness in poor countries.
That means less emphasis on numerical measures of California emissions and more emphasis on learning. What more are we likely to know at the end of a program and will that knowledge be applicable in other parts of the world?
Implications of a learning-driven strategy to tackle global climate change include:
- In procuring renewables, California’s current “least cost, best fit” approach should be augmented with “most learning.” That means a new technology about which we (and the rest of the world) will learn a lot may get funded even if it is likely to be more expensive than replicating a mature technology.
- We need greater emphasis on technology creation, both in the lab and downstream, where a lot of the learning goes on. California should consider creating a Climate Change Solutions Institute akin to the California Institute for Regenerative Medicine. The goal would be to research and develop approaches that could be applied by a large share of the world’s population.
- Every California energy efficiency program needs rigorous evaluation of what worked and why, and what didn’t work and why not. And we need to study where else in the world the same sort of efficiency policies would (or wouldn’t) be effective. The greatest value from the state’s energy efficiency leadership is likely to be knowledge creation, not GHG reduction.
This does not mean California should abandon pricing GHG emissions. Putting a price on emissions helps boost green technologies across the board. In addition, substituting cap-and-trade revenues (or GHG taxes) for income or sales taxes is a clear move towards improving economic efficiency and welfare.
California’s current strategy may eventually allow us to say “we’ve done our share; now the rest of you need to step up.” But that isn’t leadership when more than 80% of the “rest of you” are living at less than one-quarter of our standard of living. It’s time to make our Global Warming Solutions Act about global solutions.
Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.