This paper analyzes the state-level economic impacts of greenhouse gas (GHG) emissions trading policies, which have become a central mechanism for governments worldwide to respond to the issue of climate change. Emissions trading policies place burdens on GHG-intensive industries, and the consequential economic impacts are spread disproportionately across U.S. states. There is particular concern that these changes would inequitably impact states most vulnerable to economic harms through reductions in the output of key sectors, employment and income, and limited opportunities in the new green economy. Research on U.S. federal policy is limited to analysis of national and regional impacts, as opposed to state-level impacts. In this study, results from a Computable General Equilibrium analysis of the economy-wide impacts of U.S federal emissions trading policy are “regionalized” down to the state level using a model incorporating state data on output, employment, and international and inter-state trade (Dixon & Rimmer, 2004; Dixon, Rimmer & Tsigas, 2007). Emissions trading policy mechanisms proposed in recent federal policies, including the number of sectors regulated and allowance allocation processes, are compared in terms of their economic impacts across states.

State-level economic impacts have important implications for political support and decision-making at the federal level. State-level results are useful to federal representatives interested in the relative economic impacts of emissions trading policy on their constituency. State-level general equilibrium impacts of emissions trading policy are contrasted with the state-level direct impacts to greenhouse gas intensive sectors, providing policy makers with a broader understanding of state-level economic impacts. Relative gains could convince some states to favor solo policies or regional-level policy coordination, as in the cases of California and the Regional Greenhouse Gas Initiative respectively. Comparing policy mechanisms can inform policy makers as to the trade-offs between economic efficiency and interregional equity. In all, this paper provides important links between the economics and politics of U.S. federal climate policy.

References:

Dixon, P.B. & Rimmer, M.T. (2004) Disaggregation of Results from a Detailed General Equilibrium Model of the US to State Level. Monash University, Centre of Policy Studies/IMPACT Centre Study g-145.

Dixon, P.B., Rimmer, M.T., and Tsigas, M.E. (2007) Regionalising results from a detailed CGE model: Macro, industry and state effects in the U.S. of removing major tariffs and quotas. Papers in Regional Science. 86(1): 31-55.