Decentralizing Cap-and-Trade? The Question of State Stringency

Abstract:     
A cap-and-trade program is likely to be a centerpiece of federal climate change legislation. The presence of a national market does not, however, render irrelevant the states’ vital interest in the goals and operation of a national trading program. This Article addresses a first critical question about a state’s role in a federal system: whether federal legislation should allow states to be more stringent than the federal government and to achieve that stringency through controls on stationary sources. This Article reviews the compelling justifications for allowing states to be more stringent. It then assesses particular mechanisms for achieving state stringency and evaluates their potential negative consequences, particularly their impact on the national allowance market. The analysis reveals that differing mechanisms for achieving stringency are likely to have differing impacts. The Article concludes that allowing states to achieve greater stringency is justified notwithstanding certain negative consequences, but that the degree of impact should be a relevant factor in selecting among possible mechanisms. The Article also analyzes the decentralization models that federal legislation would have to adopt in order to enable states to effectively implement more stringent emissions caps.

Keywords: environmental law, climate change, federalism, states’ rights, global warming, cap-and-trade

JEL Classifications: H77, K32, Q25, Q28, Q48

Accepted Paper Series