Oregon Greenhouse Gas Reduction Policies: The Economic and Fiscal Impact Challenges

Abstract

Policy initiatives to regulate greenhouse gas emissions are fast becoming a dominant feature of regional public policy. The initiatives commonly involve setting goals to reduce emissions below a baseline or business-as-usual level. The Western Climate Initiative is one such program, and has been subscribed to by Oregon and 10 other western states and provinces. Specifically, the WCI identifies emissions reduction targets and identifies cap-and-trade mechanisms as a way to achieve emissions reduction targets. The paper first describes the nature of the WCI emissions goals and the cap-and-trade policy approach that is part of the Initiative. The paper then goes on to conduct an empirical investigation of the relationships among economic output, energy use and carbon dioxide emissions, and the links to the State's economic and fiscal condition. Absent adoption of low cost/high effectiveness technological innovations, the cost to the Oregon economy of meeting the WCI emissions curtailment goal are large. Oregon's economic growth to 2020 would be approximately cut in half, and gross output per capita would be reduced by 20 percent relative to the baseline case. State and local revenues would be reduced by about 13 percent, relative to the baseline case.

Keywords: economic impacts, Western Climate Initiative, cap-and-trade

JEL Classification: K32, O11, O38