03/28/2024

Opinion: The Fatal Flaw in California’s Cap-and-Trade Program

When California’s Gov. Jerry Brown signed a 10-year extension of the state’s cap-and-trade program this summer, it was heralded as a rebuke of President Trump, who had just announced he would withdraw the U.S. from the Paris Climate Accord. While the nation was failing on climate change, the story went, states could succeed. The trouble is that California could leak—like a sieve.

In the decade since Mr. Brown’s predecessor, Gov. Arnold Schwarzenegger, first signed the Global Warming Solutions Act, the cap-and-trade program has done little to abate carbon emissions, let alone planetary warming. Under the law, companies in California that emit carbon in their production processes must secure scarce permits for the right to do so. The theory is that this creates an incentive to invest in green power and energy efficiency.

Yet the law’s designers still have not confronted the central conundrum of trying to impose a state or regional climate policy: As firms compete for a limited supply of carbon permits, they are put at a disadvantage to out-of-state rivals. Production flees the state, taking jobs and tax revenues with it. Emissions “leak” outside California’s cap to other jurisdictions.

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