Dr. Matthew Kahn provides insight into California's upcoming cap-and-trade law and a launch-point for journalists covering the green economy. Check out additional materials from the webinar at the following link: http://businessjournalism.org/2012/10/29/californias-cap-and-trade-law-what-you-need-to-know-self-guided-training/. This webinar was co-presented by the Donald W. Reynolds National Center for Business Journalism and the Society of Environmental Journalists. For more information on free training for business journalists, please visit businessjournalism.org.

1. California’s
Cap-­‐and-­‐Trade
Law
–
What
You
Need
to
Know
Dr.
Ma'hew
E.
Kahn,
Professor,
UCLA
Ins8tute
of
the
Environment,
Departments
of
Economics
and
Public
Policy
Webinar
partner

2. California’s
cap-­‐and-­‐trade
A
program
•
to
limit
the
state’s
carbon
emissions
Cumula8ve
carbon
dioxide
emissions
from
G20
and
non-­‐G20
countries,
1751-­‐2006.
Photo
by
Flickr
user
Carbon
Visuals.
h'p://www.flickr.com/photos/carbonquilt/3986280325/

3. Main
Issues
Today
• Winners
and
losers:
Among
those
par8cipa8ng
in
the
trading
program,
which
industries
have
the
most
to
gain,
or
lose?
• What
can
we
learn
from
the
implementa8on
of
similar
laws
elsewhere
about
where
likely
stories
will
surface?
• What
stories
should
journalists
be
watching
for?

4. What
is
Cap-­‐and-­‐Trade?

5. Excerpt
alifornia
to
return
to
1990
levels
of
greenhouse
• AB
32
requires
C
from
ARB
Overview
gas
emissions
by
2020.
All
programs
developed
under
AB
32
contribute
to
the
reduc8ons
needed
to
achieve
this
goal,
and
will
deliver
an
overall
15%
reduc8on
in
greenhouse-­‐gas
emissions
compared
to
the
‘business-­‐as
usual’
scenario
in
2020
if
we
did
nothing
at
all.
• The
cap-­‐and-­‐trade
program
is
a
key
element
in
California’s
climate
plan.
It
sets
a
statewide
limit
on
sources
responsible
for
85
percent
of
California’s
greenhouse
gas
emissions,
and
establishes
a
price
signal
needed
to
drive
long-­‐term
investment
in
cleaner
fuels
and
more
efficient
use
of
energy.
h'p://www.arb.ca.gov/newsrel/2011/cap_trade_overview.pdf

6. h'p://www.arb.ca.gov/cc/capandtrade/covered_en88es_list.pdf

7. h'p://www.arb.ca.gov/cc/capandtrade/market_oversight.pdf

8. Goldilocks
• The
Air
Resources
Board
(ARB)
is
well
aware
that
there
are
interest
groups
eager
to
claim
that
it
has
“over-­‐reached”
• If
the
price
of
permits
is
too
high,
poli8cal
backlash
• If
the
price
of
permits
is
too
low,
then
no
incen8ve
to
innovate
or
change
behavior!

9. Judging
Regulatory
Success
• We
do
not
know
the
“abatement-­‐
cost
curves”
for
any
affected
en8ty.
• In
“English”,
how
costly
is
it
for
a
given
electric
u8lity
or
other
polluter
to
reduce
its
greenhouse-­‐gas
emissions?
• Do
we
observe
increased
investment
in
“energy-­‐efficiency”
investments?
• Do
green
jobs
emerge?
• Do
we
observe
breakthroughs
that
are
unlikely
to
have
taken
place
in
the
absence
of
the
cap-­‐and-­‐trade
nudge?
Photo
by
Flickr
user
CECAR

10. Judging
Regulatory
Failure
• The
price
of
electricity
for
residen8al,
industrial
and
commercial
consumers
• Goldilocks
again!
• Leakage:
Industries
in
California
that
use
a
lot
of
electricity
shut
down
factories
and
move
to
states
without
cap-­‐and-­‐trade.
• Prices
for
consumers
rise
sharply
as
regulated
en88es
pass
the
costs
on
to
final
consumers.
Closed
steel
mill
by
Flickr
user
hanjeanwat

11. Industries
Ranked
by
Electricity
Use
Industry
NAICS
Electricity
Index
Primary
Metal
Manufacturing
331
0.816
Paper
Manufacturing
322
0.706
TexCle
Mills
313
0.503
Nonmetallic
Mineral
Product
Manufacturing
Chemical
Manufacturing
327
325
0.454
0.402
PlasCcs
and
Rubber
Products
Manufacturing
326
0.330
Wood
Product
Manufacturing
321
0.253
Petroleum
and
Coal
Products
Manufacturing
324
0.245
Fabricated
Metal
Product
Manufacturing
332
0.185
PrinCng
and
Related
Support
AcCviCes
323
0.169
TexCle
Product
Mills
314
0.165
Food
Manufacturing
311
0.149
Electrical
Equipment,
Appliance,
and
Component
Manufacturing
335
0.137
Furniture
and
Related
Product
Manufacturing
337
0.123
Leather
and
Allied
Product
Manufacturing
316
0.110
Machinery
Manufacturing
333
0.103
Apparel
Manufacturing
315
0.102
Miscellaneous
Manufacturing
339
0.096
Beverage
and
Tobacco
Product
Manufacturing
312
0.092
TransportaCon
Equipment
Manufacturing
336
0.086
Computer
and
Electronic
Product
Manufacturing
334
0.051
Source:
Kahn
and
Mansur
(2011
NBER
Working
Paper)

12. Lessons
from
Other
Na8ons
• Bushnell,
Chong
and
Mansur
(2012)
h'p://www.dartmouth.edu/~mansur/
papers/
bushnell_chong_mansur_carboncost.pdf
• Stock
Price
Event
study
focused
on
how
cap-­‐and-­‐trade
regula8on
affects
profits.
• In
late
April
2006,
the
EU
CO2
allowance
price
dropped
by
50%,
they
track
daily
returns
for
552
stocks
from
the
EUROSTOXX
index.
• Australia’s
carbon
tax
• Vancouver’s
carbon
tax
• Past
U.S
success
with
the
sulfur
dioxide
permit
market

13. Future
Stories
• Given
that
climate
change
is
a
global
public
bad
and
given
that
California’s
emissions
are
only
a
small
share
of
the
globe’s
total
emissions,
why
is
California
unilaterally
a'emp8ng
this
effort?
• Known
unknowns
and
learning
through
experimenta8on
• Should
the
rest
of
the
world
pay
California
for
running
this
experiment?
• Are
permit
allowances
fair?
Why
are
the
pollu8ng
industries
receiving
so
many
permits
for
free?
Photo
by
Flickr
user
NASA
• Will
the
challenges
observed
in
Europe
Goddard
Photo
and
Video
play
out
again?

14. Why
Am
I
Op8mis8c?
• California’s
past
regulatory
success
-­‐-­‐-­‐
does
this
increase
the
likelihood
of
cap-­‐and-­‐
trade
success?
• California
as
the
“Green
Guinea
Pig”
Photo
by
Flickr
user
*~Dawn~*