Too Good to Be True? An Examination of Three Economic Assessments of California Climate Change Policy

Abstract:     
California's Global Warming Solutions Act of 2006 limits California's greenhouse gas (GHG) emissions in 2020 to their 1990 level. In 2006, three studies were released indicating that California can meet its 2020 target at no net economic cost - raising questions about whether opportunities truly exist to substantially reduce emissions at no cost, or whether studies reaching such conclusions may simply severely underestimate costs. This paper provides an evaluation of these three California studies. We find that although opportunities may exist for some no-cost emission reductions, these studies substantially underestimate the cost of meeting California's 2020 target by omitting important components of the costs of emission reduction efforts and by overestimating offsetting savings that some of those efforts yield through improved energy efficiency. In some cases, the studies focus on the costs of particular actions to reduce emissions, but fail to consider the effectiveness and costs of policies that would be necessary to bring about such actions.

Keywords: climate change, technological change

JEL Classifications: Q20, Q30, Q40

Working Paper Series