Volume 39 Issue Supplement 2, August 2013, pp. S95-S108

This article argues that the prospects for US state and Canadian provincial climate policy innovation and diffusion are limited in several respects. Subnational climate leaders tend already to be the cleanest states and provinces, and even they have been strategic in the sectors they regulate and the instruments they employ. In some cases, this selectivity appears to be motivated by opportunities to shift compliance costs to other states. Efforts to pool risks through state and provincial collaboration also are flagging in the wake of the Canadian and US federal governments’ failure to adopt nation-wide policies to level the playing field.

Dans cet article, j’avance que les exemples que pourraient suivre les États américains et les provinces canadiennes en matière d’innovation et de diffusion de politiques sur les changements climatiques sont limités de plusieurs façons. Les leaders, dans ce domaine, ont tendance à être les États et les provinces qui sont de toute façon déjà les plus « propres », et ils ont été stratégiques dans les secteurs qui sont sous leur responsabilité et les instruments qu’ils utilisent. Dans certains cas, les décisions de faire des choix semblent motivées par la possibilité de transférer les coûts d’observation à d’autres paliers de gouvernement. Les efforts réalisés pour regrouper les risques grâce à la collaboration d’États ou de provinces diminuent étant donné l’échec des gouvernements fédéraux canadiens et américains à adopter des politiques permettant d’aplanir les difficultés.

Market-based policy instruments offer great promise for mitigating climate change more cost-effectively than traditional regulation, subsidies, or voluntary programs. Yet despite decades of academic advice and a growing body of application in other countries, Canadian governments have relatively limited experience with market-based approaches to environmental policy. In the context of Canada’s decentralized federation, a critical question is to what degree federalism can facilitate or deter policy innovation and diffusion.

The literature on federalism and public policy is decidedly contradictory. On the one hand, there is skepticism regarding the policy capacity of states and provinces and concern about the costs of an inconsistent patchwork of subnational policies. There is also fear that states and provinces competing to attract investment will set taxes or standards at the lowest common denominator. On the other hand, there is recognition that states and provinces can serve as “laboratories of democracy,” where diversity prompts both innovation and interprovincial diffusion of the most successful policy experiments.

There are especially good reasons for skepticism concerning subnational policy-making to address climate change, however, since mitigation costs will be borne locally, but environmental benefits will be shared globally. As Adler (2008, 448) notes, “No state, acting alone, is capable of adopting emissions controls that would make a dent in global emissions.” Despite this, the vitality of state and local climate policy has been documented by a growing literature. Schreurs and Tiberghien (2010) highlight the influence of pioneering member states of the European Union (EU) in unilaterally setting ambitious emissions reductions targets in the 1990s that facilitated later adoption of EU-wide climate measures. Rabe (2004, 2008, 2011) has examined a bottom-up dynamic, where in the absence of meaningful federal action, US state governments have devised innovative policies and acted in concert through regional emissions-trading programs. Canadian provinces also have partially filled a federal vacuum by innovating, most notably in the case of British Columbia’s carbon tax (Harrison 2012a), and by collaborating with each other and US states.

This article examines the limits of subnational climate policy innovation, drawing evidence from the Canadian and US federations. The intention is not to question the value of state and provincial actions that reduce greenhouse gas (GHG) emissions, particularly in the absence of meaningful federal intervention, but rather to call for more guarded enthusiasm concerning the scope and impact of subnational climate policy. State and provincial leadership has emerged selectively, often where there is a perception of local environmental or economic benefits. The leaders tend already to be the cleanest states, and even they have ordered “a la carte” from the menu of climate policies. In contrast, states and provinces with the most GHG-intensive economies have not only declined to follow the leaders, but have attempted to obstruct action by their peers and national governments, via intergovernmental forums in Canada and via the courts in the United States. Last, efforts to pool risks through state and provincial collaboration are flagging in the wake of the Canadian and US federal governments’ failure to adopt nation-wide policies to level the playing field.

Politicians seek to devise policies that maximize political credit and minimize blame. With respect to climate change, credit and blame are, of course, closely tied to the environmental benefits and economic costs of emissions reductions. However, the relationships between environmental benefits and credit, and between monetary costs and blame are not necessarily proportional, given voters’ varying preferences and inattentiveness.

All else being equal, one would expect costs and benefits to be more politically salient to the extent that they are concentrated, local, and immediate. In that regard, the globally diffused and temporally delayed benefits of action on climate change present obvious challenges. Why would a state or province incur costs to reduce its emissions when benefits in the distant future will be spread throughout the global atmosphere, with negligible impact on the local environment? Authors who have studied subnational climate activism offer several explanations for state activism (e.g., Stewart 2008; Engel 2006; Rabe 2008). Immediate environmental co-benefits through reduction of localized air pollutants can motivate action that coincidentally reduces GHG emissions. Local economic benefits also may politically outweigh GHG abatement costs if mitigation measures yield local jobs, whether through market forces or by design. Finally, voters may grant policy-makers political credit despite minimal environmental gains if they value leadership on climate change for its own sake or have an exaggerated perception of the impact of local policies.

As with political credit, blame is also more likely to be incurred when costs are concentrated, local, and immediate. The threat of concentrated local job losses typically will be more politically salient than widely diffused, and thus slightly increased, consumer costs. Moreover, the costs may be for naught if production simply relocates to jurisdictions without comparable regulations. A critical issue, however, is the degree to which compliance costs can be shifted strategically to other states or provinces. In that regard, it is useful to introduce two closely related distinctions: production versus consumption emissions, and process versus product standards.

Production versus Consumption Emissions

By international convention, jurisdictions are accountable only for GHG emissions that occur within their borders. However, consumer products can have emissions at the points of both production and consumption, and those stages in a product’s life cycle often occur in different jurisdictions. The distinction is not unique to climate change, but the balance of production and consumption emissions associated with greenhouse gases can vary tremendously depending on the goods and energy sources in question, thus creating opportunities for geographic separation of political costs and benefits. In the most familiar scenario, an emissions-intensive industry, such as steel or cement, generates the majority of associated GHG emissions at the point of manufacture. Emissions reductions and any resulting impacts on employment thus occur within the same jurisdiction.

A very different scenario arises, however, where most of the emissions associated with a consumer product occur at the point of consumption. Auto manufacturing, for instance, is not particularly emissions-intensive; yet consumer use of motor vehicles contributes roughly one-third of North American GHG emissions. A similar situation arises when the product in question is itself a fossil fuel. Production may be more or less emissions-intensive depending on extraction techniques, but emissions at the point of consumption (i.e., combustion) invariably are much greater. In such cases, the most politically salient costs—jobs at risk—are located in the jurisdictions where production occurs, while emissions associated with consumption typically arise in another jurisdiction.

Process versus Product Standards

Two distinct approaches can be employed by governments to address production and consumption emissions. Process standards or taxes apply to an emissions source, such as a factory. Since no jurisdiction has authority to regulate or tax emissions beyond its borders, such policies necessarily apply only to operations within the state or province in question. This presents a significant political challenge: local producers invariably raise the prospect of negative impacts on their competitiveness, should the home jurisdictions of competitors not regulate or tax with comparable stringency. The spectre of a “race to the bottom,” in which jurisdictions seek to attract jobs by undercutting each other’s environmental standards, is often raised. Such a scenario can be modelled by a prisoner’s dilemma, yielding an outcome in which two jurisdictions both decline to regulate, thus failing to gain either jobs or environmental benefits.

A subtle shift in preferences, however, yields a more tractable outcome. If both jurisdictions are reluctant to act alone lest they lose jobs, but not willing to go so far as to relax environmental standards in order to lure jobs away from each other, the game is transformed to assurance. Two equilibrium outcomes are now plausible—either both jurisdictions regulate or neither does. Although the optimal outcome in which both regulate is by no means assured, it is easier for jurisdictions to cooperate, since neither is motivated to undercut the other.1

The foregoing assumes that the jurisdictions in question have the same preferences with respect to jobs and environmental standards. The presence of states or provinces with stronger or weaker environmental preferences could tip the balance toward or away from achieving more desirable outcomes. Unilateral regulation by a “green” state willing to act regardless of the actions of other jurisdictions will not resolve a prisoner’s dilemma, since “brown” states will simply take advantage of the opportunity to steal jobs. Regulation by a green state can, however, go a long way towards reassuring “beige” states that are merely reluctant to go it alone in an assurance scenario. By the same token, though, the presence of a brown state, disinclined to regulate no matter what, can undermine the resolve of reluctant beige states, increasing the likelihood of an outcome in which neither jurisdiction regulates in an assurance game.

In contrast to process standards, product standards apply to all goods sold within a jurisdiction, regardless of origins. Product standards thus offer the political advantage of levelling the playing field for in-state and out-of-state producers. Indeed, to the extent that the goods in question are imported, any resulting impacts on employment will be felt most keenly by the manufacturing sector in another state. The potential to shift some fraction of the most salient costs out of state makes product standards, such as automobile tailpipe standards and energy efficiency standards, more politically attractive than process standards. At the limit, policy-makers may be tempted to focus their regulatory efforts disproportionately on goods that are primarily imported.

Process and production method (PPM) standards represent a hybrid of sorts, in which a jurisdiction regulates the sale of products within its borders based on emissions or practices at the point of production, wherever that might be. PPM standards offer a strategy to reduce the impact of process standards on the competitiveness of local industry by levelling the playing field with producers elsewhere. They are regarded skeptically, however, in international trade law, since one jurisdiction’s interest in protecting environmental quality in another jurisdiction may be a pretext to shield local producers from import competition. Some have argued, though, that PPM standards are more likely to withstand trade challenges when they concern trans-boundary environmental impacts, such as climate change, since the standards also yield a local environmental benefit (World Bank 2008).

Implications

Many of the political economy issues that emerge within a federation also arise in the context of international trade. There are, however, several critical differences, some exacerbating and others alleviating the challenges of coordination. On the one hand, the strength of the common market within a single country will tend to make unilateral regulatory action more difficult, since the risk of both job losses and environmental leakage looms larger when the movement of people, money, and goods is unrestricted. Constitutional and legal avenues to challenge trade measures that have been erected to defend environmental standards or taxes also are more readily available within a single nation-state. As discussed below, the fact that emissions accounting rules in international treaties do not apply at the subnational level can prompt strategic efforts to claim credit for out-of-state environmental benefits that would be prohibited internationally. On the other hand, personal and political ties across state/provincial borders within a country may facilitate subnational cooperation to overcome destructive competition. Finally, within a federation there is also an option, not available in the international context, of independent federal government intervention to establish common standards. It is with an eye to this outcome that enthusiasts for subnational climate policy hold out their greatest hope (Stewart 2008; DeShazo and Freeman 2007; Wiener 2007; Lutsey and Sperling 2008; Engel 2006). While recognizing that not all states or provinces will act on their own, the expectation is that if enough do, that will provide “a spur to national and international regimes to get their act together” (Ostrom 2012, 366).

The foregoing discussion suggests several implications:

  1. States and provinces are more likely to act with respect to sectors or product categories that offer selective and immediate local benefits from actions to address global warming.

  2. State and provincial policy entrepreneurs will be more willing to embrace product standards than process standards, especially to the extent that the products most affected are produced out of state.

  3. States and provinces are expected to seize opportunities to claim credit for emissions reductions that occur outside their borders.

  4. State leaders will seek to minimize impacts of process standards on competitiveness via collaboration and/or lobbying for federal intervention to level the playing field. Conversely, a federal refusal to establish national standards will tend to undermine subnational initiatives.

Despite considerable obstacles, subnational governments have been active in the field of climate policy. Three distinct interstate dynamics are evident. The first is “a classic pattern of diffusion, whereby a policy idea begins in one state but then is essentially replicated elsewhere” (Rabe 2011, 550). Many of the climate policies that have been pursued at the state and provincial level are novel, and typically include market elements. For instance, Renewable Portfolio Standards (RPSs) specify that a minimum fraction of electricity production must come from renewable sources. While second best to broad-based carbon pricing that captures savings across sectors, the best-designed RPSs, nonetheless, can enhance cost-effectiveness through trading of renewable credits within the electricity sector, quite apart from other benefits such as economic restructuring and local air quality improvements. The approach has spread rapidly: the fraction of Americans living in states with RPSs grew from 5 percent in 1999 (Lutsey and Sperling 2008) to 77 percent in 2012 (Center for Climate and Energy Solutions 2012a).

California was the first US state to establish tailpipe standards for GHG emissions from motor vehicles. It was, in fact, the only state in a position to do so. In recognition of the unique air quality challenges of the Los Angeles basin, in 1970 California was authorized by the US Clean Air Act (now public law 101-549) to adopt regulations stricter than national standards, though it must first obtain a waiver from the Environmental Protection Agency (EPA). If California is granted permission to deviate from national standards, however, all other states have the option of matching the California standard. California formally requested a waiver to regulate tailpipe GHG emissions in 2005, prompting 15 other states to commit to matching California’s standard (Center for Climate and Energy Solutions 2012a).

California was again the first US state, indeed the first jurisdiction worldwide, to adopt a low carbon fuel standard. The approach limits the life cycle emissions per unit of transportation fuel, but gives fuel distributors flexibility in meeting the standard by mixing low carbon-intensity biofuels, conventional fuels, and high carbon-intensity fuels such as those derived from tar sands. In 2010, California adopted a regulation that requires a 10 percent reduction in emissions intensity of transportation fuels by 2020. Several other US states have committed to pursuing a low carbon fuel standard but have yet to do so. In Canada, British Columbia has adopted a low carbon fuel standard, but one that disregards the greater emissions intensity of oil derived from tar sands. This is presumably a consequence of British Columbia’s heavy reliance on fuels derived from Alberta’s tar sands, but it is unclear whether the rationale lies in economic self-interest or interprovincial pressure.

In the second subnational dynamic, akin to the assurance game discussed above, state and provincial leaders’ influence is less a result of their ideas than of political good will. Although the novel approaches discussed above all involve product standards, California, Massachusetts, and New York (among others) have provided reassurance for other, more reluctant states to embrace process standards. In 2006, California passed the Global Warming Solutions Act (Assembly Bill 32), which sets a target of returning California’s emissions to 1990 levels, or 25 percent below projected emissions, by 2020. Although many other states and provinces had previously announced emissions targets, California was the first to adopt legislation that established a binding schedule for actions, including regulation of stationary sources to ensure that its targets are achieved. Following California’s example, seven other states and the province of British Columbia enshrined GHG targets in legislation (Center for Climate and Energy Solutions 2012a).

A state’s willingness to regulate unilaterally need not imply that the state prefers to go it alone, however. In the third interstate dynamic, coordination among like-minded states can reduce the risk of emissions leakage, lessen competitiveness impacts, and reduce abatement costs by extending emissions trading to a larger market. The northeastern and mid-Atlantic states were the first to coordinate their climate policies via the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program established to reduce emissions from power plants to 10 percent below 2009 levels by 2018. Following RGGI’s lead, seven Western states (California, Arizona, New Mexico, Oregon, Washington, Utah, and Montana) and four Canadian provinces (British Columbia, Manitoba, Ontario, and Quebec) formed the Western Climate Initiative (WCI), committing to an even more ambitious economy-wide capand-trade program to reduce their emissions to 15 percent below a 2005 baseline by 2020.

While state and provincial climate policy innovation is encouraging, the following sections consider limits to policy diffusion and subnational collaboration.

US states and Canadian provinces vary significantly in the greenhouse gas intensity of their economies, largely reflecting the diversity of their natural resource endowments. US states such as New York, Connecticut, California, Idaho, and Vermont had 2010 carbon dioxide emissions from fossil fuel combustion of nine to ten tonnes of CO2 per person (/person) (US Environmental Protection Agency 2012). At the other end of the spectrum, West Virginia, Alaska, North Dakota, and Wyoming had emissions of 53 to 115 tonnes CO2/person. The range within Canada is broad as well, from Quebec and British Columbia with 2010 GHG emissions of ten and 13 tonnes CO2eq/person, to Alberta and Saskatchewan at 63 and 69 tonnes CO2eq/person (Government of Canada 2012). There is also tremendous variation in emission trends. Emissions increased by more than 40 percent from 1990 to 2010 in two Canadian provinces (Alberta and Saskatchewan) and six US states (South Carolina, Nebraska, Arizona, Colorado, Idaho, and Iowa), but decreased in three other provinces (Ontario, Quebec, and Newfoundland) and nine US states. For the most part, this disparity reflects trends in economic growth and contraction, rather than the impact of only recently enacted state and provincial climate policies. It is, however, easier to pursue emissions reductions where emissions are already declining or where low per capita emissions reflect the availability of abundant renewable energy.

There has been tremendous variation in US states’ climate activism in the last decade. At the limit, California “has literally ‘run the table’ by adopting virtually every kind of climate policy imaginable” (Rabe 2008, 111). California, Connecticut, Oregon, and Vermont have each adopted two dozen or more climate initiatives, while at the other end of the spectrum, Mississippi and South Dakota have adopted only four and five climate measures respectively (Center for Climate and Energy Solutions 2012a). How might we account for this variation?

Consistent with the hypothesis that climate policies are motivated by selective local benefits, Matisoff (2008) finds that the worse a state’s air quality, the more likely it is to have adopted a renewable portfolio standard (though that finding was not confirmed by Lyon and Yin (2010)). It is also striking that many US states that have adopted measures to reduce GHG emissions do not present their policies in terms of the climate change benefits and, indeed, often do not mention climate change at all (Rabe 2004). While in theory this may reflect a strategy of adopting controversial climate policies “by stealth,” a more straightforward hypothesis is that those policies were motivated by goals other than climate change mitigation. Engel (2006) and Rabe, Roman, and Dobelis (2005) observe that state policy-makers invariably stress that RPSs will generate local jobs via investments in renewable energy and, in agricultural states, that biofuels and bio-sequestration can create jobs. Consistent with this, Amigo (2011) argues that oil-rich Texas’s surprising leadership in developing wind power can be explained by a decades-long commitment to energy self-sufficiency (and thus local jobs), coupled with declining local coal reserves. Faced with a shortage of local coal, Texas opted for local wind rather than imported electricity. Both Matisoff (2008) and Lyon and Yin (2010) find that the greater a state’s potential for generation of electricity from renewables (wind and solar), the more likely it is to have adopted a renewable portfolio standard. Not taking any chances, however, half the states with RPSs include either restrictions or outright prohibitions on trading credits out of state (Lyon and Yin 2010). Similarly, Ontario’s Green Energy Act (Government of Ontario 2009) specifies that goods and labour from within the province must account for 60 percent of the costs of clean energy projects (though the provision was ruled a violation of the General Agreement on Tariffs and Trade (GATT) by the World Trade Organization (WTO) in December 2012).

Despite the political disadvantages of carbon taxes (Harrison 2012a), Rabe and Borick (2012) note that state severance taxes on fossil fuels are surprisingly common. However, the application of severance taxes and royalties by states and provinces producing fossil fuels, while beneficial to some degree in deterring GHG emissions, is more obviously motivated by an opportunity to capture resource rents rather than to mitigate climate change. Indeed, because states with oil and gas typically export most of their production, severance taxes offer an attractive vehicle to shift the tax burden from local voters to out-of-state consumers.

The flip side of the hypothesis that states with selective economic incentives will be more inclined to adopt climate-related policies is that those facing economic disincentives to reduce GHG emissions will be less likely to do so. Both Thomson and Arroyo (2011) and Lutsey and Sperling (2008) report that US states are less likely to adopt climate change measures if they have fossil fuel-intensive economies or rely heavily on fossil fuels for electricity generation. Matisoff (2008) finds that the more carbon-intensive the economy, the less likely a state is to adopt a renewable portfolio standard. Lyon and Yin (2010) find that the natural gas industry, in particular, deters state adoption of RPSs, presumably because gas-rich states seek to substitute natural gas, rather than renewable wind or solar, for coal.

Table 1 demonstrates that the average state-adopter of various climate policy measures is less carbon-intensive than the average non-adopter. Past studies have not tracked Canadian provinces’ adoption of the same suite of climate policies, but some comparisons can be offered. Although five provinces originally committed to matching the California tailpipe standard (Campbell 2007), only British Columbia and Quebec, the two provinces with the lowest per capita emissions, actually did so. Similarly, the four provincial members of the WCI comprise four of the five least emissions-intensive provincial economies, and only Quebec, the province with the lowest per capita emissions, has followed through on its commitment to emissions trading. Carbon taxation is the one measure

Table

Table 1 Comparison of State and Provincial Climate Leaders and Laggards

Table 1 Comparison of State and Provincial Climate Leaders and Laggards

Program States/Provinces # Population % Emissions % Share Emissions Growth, 1990–2010 % Adopters Tonnes/Person-Yr Non-Adopters Tonnes/Person-Yr
US STATES
 Renewable portfolio standards 36 77 73 51 17 21
 California tailpipe standard 16 38 25 0 12 22
 Binding state-wide target 10 26 16 5 11 21
 RGGI 10 17 12 −11 13 19
 WCI, original member 7 19 13 13 12 20
 WCI member, 2012 1 12 7 1 10 19
 Clean electricity standard 6 26 17 6 11 21
CANADIAN PROVINCES
 California tailpipe standard 2 37 20 5 11 26
 WCI member 4 79 48 1 12 49
 WCI, trading 2012 1 24 12 −2 10 24
 Clean electricity standard 3 13 8 7 13 35
 Carbon tax 3 48 54 70 23 18

Notes: RGGI=Regional Greenhouse Gas Initiative. WCI=Western Climate Initiative.

Sources: Summaries of state and provincial climate policies are from the Center for Climate and Energy Solutions (2012a) and the David Suzuki Foundation (2012). Emissions and emissions growth data are from the US Environmental Protection Agency (2012) and the Government of Canada (2012). Population statistics are from Canadian and US censuses.

in Table 1 that appears to depart from this pattern. However, that is an artifact of classifying Alberta’s cap-and-dividend program as a carbon tax, though it applies only to a subset of emissions by a subset of polluters.

The wide variation in the number of climate policies adopted by US states confirms that not all policy innovations are being embraced with equal fervour. Table 2 classifies measures tracked by the Center for Climate and Energy Solutions (2012a) by policy instrument. Although complexity of state policies within each category may have yielded coding errors, broad trends are nonetheless apparent. As anticipated, the instruments most widely employed are symbolic policies, such as the adoption of targets that have minimal costs or benefits, and product standards, which hold the promise of shifting some fraction of compliance costs out of state. Although the unique air quality challenges of the Los Angeles basin undoubtedly have contributed to California’s resolve with respect to regulation of transportation emissions, it has not hurt that virtually none of the vehicles in question are manufactured in California, or in the other states that opted to follow California’s lead. Similarly, although in 2007 nine Canadian provinces called for the federal government to match California’s tailpipe standard nation-wide, the lone holdout was Ontario, the one province that relies heavily on auto manufacturing (Campbell 2007). In joining the WCI, Ontario also negotiated a special concession so that it would not have to commit to matching the California standard.

The widespread adoption of standards for the building sector is noteworthy, however. Unlike other product standards, building codes apply only to goods produced within the state. As such, they might be expected to hold less political appeal than other product standards. However, in contrast to process standards that penalize in-state producers, there is no trade exposure and thus no risk of leakage in response to building codes. Four other product standards are less common. These include California’s low carbon fuel standard, which is quite new and currently subject to a court challenge (discussed below), and three product standards—vehicle fuel economy, tailpipe emissions, and appliance standards—where the pre-existence of national standards may have deflected state initiative.

As anticipated, measures that entail process regulation are least popular. Indeed, in comparison to the number of product categories that have been regulated, it is striking that, with the exception of California’s state-wide emissions-trading program scheduled to take effect in 2013, only process emissions from electric utilities have been regulated, and even those, only by a minority of US states, most notably those that have acted in concert through RGGI.

As noted above, process and product method or “cradle-to-grave” standards represent a special category of product standards that seek to limit production-related emissions occurring in other jurisdictions. In 2006, California adopted a law (SB1368) that prohibits utilities from entering into new contracts for the purchase of electricity that was produced with emissions greater than those of a combined-cycle natural gas plant. The restriction applies, regardless of where the electricity was produced. It is noteworthy that although California imports only about one-quarter of its electricity, those imports are disproportionately from coal-fired facilities and thus account for half of the emissions associated with electricity consumption in California (California Air Resources Board 2008, 12). California’s application of its clean electricity standard to out-of-state producers has been emulated by Oregon and Washington (Center for Climate

Table

Table 2 Frequency of State Adoption of Various Climate Policy Instruments

Table 2 Frequency of State Adoption of Various Climate Policy Instruments

Policy Instrument Number of States (Including DC) Adopting
Symbolic measures and information gathering
 Renewable energy credit tracking 51
 GHG registry 43
 Climate action plan 39
 Commissions and advisory groups 25
 GHG targets 24
 State adaptation plan 23
Product standards
 Mandates/incentives for biofuels 44
 Green building standards 44
 Medium and heavy-duty vehicle standards 40
 Energy codes, residential 40
 Energy codes, commercial 40
 Mandatory renewable portfolio standard* 35
 Plug-in electric vehicle standard 35
 Energy efficiency resource standard 34
 VMT-related policies and incentives 20
 California vehicle GHG standards 16
 Appliance energy standards 15
 Low carbon fuel standards* 1
Spending
 Property assessed clean energy programs 29
 Public benefits funds 20
 Carbon capture and sequestration incentives 12
Process regulation
 Interstate emissions trading 11
 Other electricity caps* 6

Notes: GHG=greenhouse gas. VMT= vehicle miles travelled. Three difficult-to-classify measures have been excluded: mandatory green electricity pricing, net metering, and ”decoupling policies.”

*Measures indicated by an asterisk have been updated by the author to account for policy reversals since the original publication, as well as a distinction relevant to the analysis, between mandatory and voluntary renewable portfolio standards.

Source: Center for Climate and Energy Solutions (2012a).

and Energy Solutions 2012b). California includes emissions associated with production of electricity consumed in California in its emissions inventory, and allows that utilities can rely on reductions mandated by the clean electricity standard to meet their cap-and-trade obligations, even though the electricity standard predates the cap-and-trade program (California Air Resources Board 2008, C95-6).

As with the clean electricity standard, California’s low carbon fuel standard, which took effect in 2011, limits the sale of transportation fuels within the state, based on methods of production that typically take place out of state (imports accounting for almost 70 percent of California’s petroleum consumption). In contrast to the clean electricity standard, the state’s plan to meet its 2020 targets only claims reductions for the tank-to-wheels fraction of the life cycle that occurs within California. However, in contrast to electricity production, because most emissions associated with transportation fuels occur during vehicle use, three-quarters of the reductions can be attributed the state. Moreover, the state projects that consumers will actually save money, that substitution of locally produced bio-fuels for imported gasoline will result in two dozen new biofuel plants, and that existing oil refineries within California will simply redirect their sales to other states (California Air Resources Board 2009, VII: 1-15).

California’s regulation of life cycle emissions from electricity and transportation fuels can be applauded as an effort to extend the state’s responsibility for its carbon footprint, even when that footprint crosses state borders. Yet the opportunities to export costs in the one case, and to import local economic benefits in the other, suggest that other reasons may underlie the state’s embrace of responsibility for these two, and only these two, product categories. It is noteworthy that even as California has extended its regulatory reach concerning electricity production standard beyond state borders, its renewable portfolio standard does not allow the purchase of renewable energy credits outside the state (Lyon and Yin 2010). Similarly, Executive Order S-06-06 requires that at least 40 percent of biofuels consumed in California be produced in the state. California thus seems happy to export job losses to other states, but less willing to share job gains.

In the first volley of what will undoubtedly be a protracted legal battle, a US district court issued an injunction in 2011 against California’s low carbon fuel standard on the grounds that it violates the interstate commerce clause of the US constitution. Life cycle regulation at the subnational level also presents the possibility that emissions reductions will be claimed by two (or more) states. At the limit, there is a possibility that reductions may simply be an illusion, if GHG-intensive producers, whether in California or other states, simply shift their sales to markets without comparable restrictions.

As discussed above, state climate policy optimists often cite the potential for diffusion of subnational policies to the national level. The US federation presents two very different narratives with respect to nationalization of state climate policies. In the case of tailpipe standards, 15 states committed to match California’s standard, thus promising to extend its reach to almost 40 percent of the US population. Although the US EPA denied California’s request for a waiver in the final days of the Bush Administration, the Obama Administration reversed that decision and went a step further, imposing a comparable national standard in 2012. Leadership by California and other states clearly was critical to the emergence of the US national standard, as well as to the matching Canadian standard that soon followed. However, the successful transfer of state tailpipe standards to the national level also rested on several other factors: the Administration’s authority to act under existing legislation without waiting for Congress; industry’s opposition to inconsistent product standards; the unique mechanism for interstate coordination built into the US Clean Air Act; and, finally, the global recession. With respect to the last, it was not only the promise of nationally consistent standards, but also a much-needed federal financial bailout that set the stage for automakers to withdraw their legal challenge to the California standard.

Absent these conditions, nationalization of process standards has been less successful. In the assurance game discussed above, a reluctant state can be convinced to act by another state’s leadership. Leadership by some states, particularly large ones like California and New York, undoubtedly encouraged some states to participate in RGGI and the WCI. At the same time, other states’ insistence on inaction can undo that resolve, underscoring the value of national standards. Thus, even while coordinating their own efforts to reduce competitiveness impacts, state leaders have advocated federal action to level the playing field. In fact, RGGI and WCI members have sued the federal government to force development of baseline national standards, though a dozen climate-laggard states have petitioned the courts to block national GHG regulations (Rabe 2011).

In that context, clear rejection of national standards by the federal government is a potential game changer. In the wake of both countries’ failure in 2010 to adopt national cap-and-trade programs, many of the first movers among the US states and Canadian provinces have reconsidered their activism. Plans for coordinated adoption of low carbon fuel standards have stalled (Eilperin 2012). RGGI has survived (though without New Jersey), but the program’s staying power seems to rest on the much-needed state revenues from permit auctions, rather than from its environmental benefits, since the emissions cap became largely moot in the wake of the financial crisis (Rabe 2011). A planned Midwestern cap-and-trade program was abandoned. And all US state members, save California, have withdrawn from WCI, while among the four Canada members, only Quebec joined California in trading in 2013.

US states’ and Canadian provinces’ climate activism in the face of federal government inaction is encouraging. Some meaningful actions by at least some governments are better than nothing. British Columbia’s carbon tax and California and Quebec’s economy-wide cap-and-trade programs are particularly noteworthy. States and provinces have also developed policy innovations worthy of emulation, both nationally and internationally.

It is, however, useful to examine the motives for subnational climate policy, since those motives have implications for the scope of policy diffusion. If states are selectively picking low-hanging fruit that offers immediate, local economic benefits, it does not necessarily follow that they will pick from higher branches that present greater economic challenges, nor that their example will be emulated by jurisdictions facing a tougher harvest from the outset. The discussion above suggests that subnational climate activism to date has been truncated both within states and in its take-up across states. Moreover, states have relied disproportionately on product standards that tend to shift costs to other jurisdictions, and at the limit, have claimed credit for emissions reductions that occur beyond their borders, presenting troubling prospects of leakage and double-counting. Finally, state and provincial leaders’ efforts to pool risks through collaboration are faltering in the face of persistent inaction by other states and federal governments.

This article has relied primarily on evidence from the US federation where, as in Canada, the challenge has been one of state action in the context of federal inaction. In other respects, however, the obstacles to provincial unilateralism are even greater in Canada. First, the smaller number of Canadian provinces than US states, particularly in combination with a parliamentary system that yields executive federalism, has created an expectation of intergovernmental consensus, thus reinforcing opposition from laggard provinces. Second, the concurrence of the politics of language and climate change has undermined demand for national standards by subnational governments in Canada in comparison to the United States. In contrast to California’s participation in litigation demanding federal action, its Canadian partner in emissions trading, Quebec, joined Alberta in opposing a federal cap-and-trade program (Campbell 2007), though for very different reasons. Finally, unlike the United States (and the European Union), in Canada it is the most emissions-intensive provinces that are experiencing the greatest emissions growth (Harrison 2012b). While it may be possible to win over deindustrialized rust-belt states with the promise of transition to a clean energy economy (Rabe 2008), a province with a booming oil industry has a good deal more to lose in redirecting its economy away from fossil fuels. This represents a profound challenge in the Canadian context, where Alberta accounts for almost all projected emissions growth nationally (Environment Canada 2012). It is a challenge unlikely to be overcome by other provinces in the absence of federal leadership.

Note

1 If two identical provinces are each considering a new regulatory standard (or tax), four idealized outcomes are possible: both could regulate (R,R), both could choose not to regulate (NR, NR), and either could regulate unilaterally (R,NR or NR,R). Both provinces presumably prefer to gain environmental benefits if there is no consequence for jobs (R,R>NR,NR). They also can be expected to prefer more jobs with equal local environmental benefits (NR,R>NR,NR; R,R>R,NR), and to avoid regulating uni-laterally and losing jobs (NR,NR>R,NR). If, in addition, each would forego environmental benefits in order to lure jobs from the other (NR,R>R,R), we have the familiar prisoner’s dilemma: NR,R>R,R>NR,NR>R,NR, which yields a suboptimal Nash equilibrium in which neither jurisdiction regulates (NR,NR). If, however, only the last assumption is reversed—both jurisdictions value marginal environmental benefits such that they prefer an outcome in which both regulate and they forego job gains to one in which they gain jobs but forego environmental benefits (R,R>NR,R)—the result is an assurance (or stag hunt) game with two possible equilibria: R,R and NR,NR. For further elaboration, see Harrison (2006).

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