The Shifting Roles of the EU, the US and California
Edited by David Vogel and Johan Swinnen
Chapter 6: Climate Change Policy in California: Balancing Markets versus Regulation
Michael Hanemann and Chris Busch INTRODUCTION Background Global warming is the most challenging environmental problem ever to confront humanity. Every sector of the economy must be part of the solution because virtually every economic activity produces greenhouse gas (GHG) emissions. Emissions are produced from the combustion of coal and natural gas for the generation of electricity as well as the use of gasoline and diesel fuels in internal combustion engines for transportation. They stem from the direct combustion of fossil fuels and consumption of electricity in industry (petroleum refining, cement, steel, aluminium and other manufacturing). They arise from soil disturbance, fertilizer use and the conversion of forested land to less carbon-intensive uses in agriculture, timber cutting in forestry, and the decomposition of organic matter that produces methane gas from landfills. These are some highlights – the list goes on. The challenge is heightened by the global scale and multi-decadal time horizon over which the optimal response would ideally be planned. Further adding to the complexity are thorny equity issues. Within industrial countries, there is justified concern about the vulnerability of lowincome groups to the economic impacts of climate policy. While there is growing reason to believe that climate progress can be affordable, and can even lead to more economic growth and certainly improved quality of life, part of the solution is also to correct the present underpricing of the fossil fuel-based energy sources that currently dominate – internalizing the externality in economic terms. And these price rises hit low-income households hardest because...
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