Press Release

How California Can Prevent CO2 “Leakage”

May 13, 2016

WASHINGTON—California’s Global Warming Solutions Act of 2006, commonly known as Assembly Bill 32, or AB 32, allows for a state-wide program for reducing greenhouse gas emissions from all sources. Resource for the Future (RFF) today has posted a new paper aimed at addressing potential CO2 “leakage” from energy intensive manufacturing industries in California.

RFF Senior Fellows Joshua Linn and Richard Morgenstern, and Clark University Professor of Economics Wayne Gray are the authors of “Employment and Output Leakage under California’s Cap-and-Trade Program.” In it, they examine economic activity that may relocate CO2-emitting business from high regulatory cost areas to ones with lower costs, thereby raising concerns about potentially adverse impacts of California’s cap and trade program on industrial competitiveness, trade flows, and emissions "leakage" for emissions-intensive and trade-exposed industries.

AB 32 specifically directs California regulators to "to minimize leakage to the extent feasible." To comply with this requirement, the California Air Resources Board (CARB) has developed a methodology to identify those industries most at risk of emissions leakage.

The authors have developed a statistical model that analyzes historical effects of energy prices on economic activity inside and outside of California, and particularly focus on differences in energy prices between California and nearby regions, emphasizing that set of industries identified by CARB as being potentially vulnerable.

The authors plan to present their findings on May 18 in Sacramento before a CARB panel. Read the full report and its conclusions: Employment and Output Leakage under California’s Cap-and-Trade Program.

Resources for the Future does not take intitutional positions. Please attribute any findings to the authors or the research itself. For example, use "According to research from RFF …" rather than "According to RFF …".

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Resources for the Future (RFF) is an independent, nonpartisan organization based in Washington, DC, that conducts rigorous economic research and analysis to improve environmental and natural resource policy.