A Reality Check on Initiatives to Reduce Greenhouse Gas Emissions in California, Oregon, the Northeast and in Europe

Executive Summary

Several U.S. states and the European Union have adopted caps on greenhouse gas emissions (GHGs) designed to reduce greenhouse gas emissions by curbing energy use, encouraging the use of renewables and increasing energy efficiency. California has enacted a series of bills to reduce GHGs, including Assembly Bill 32 which requires that emissions be cut to 1990 levels by 2020. Given the state’s own projections of growth in population and in baseline GHG emissions, the reduction targets can only be achieved through significant reductions in economic growth and employment. Ten northeastern states formed the Regional Greenhouse Gas Initiative (“RGGI”) to reduce carbon dioxide (CO2) emissions from electric utilities. The evidence suggests that RGGI may be a “paper tiger” because RGGI’s initial cap of 121.3 million short tons of carbon dioxide may be higher than actual emissions when the cap applies in 2009. In addition, reports that Portland, Oregon reduced GHG emissions to 10 percent below 1990 levels in 2004 are based on questionable data and one time events like changing landfills and to a slowing economy.

The European Union’s mandatory emission trading system (ETS) has not been successful in slowing the growth of GHGs in the EU-15 (the original members like France, Spain, Germany, UK, and Italy). The United States on the other hand, with its voluntary approach, has made steady progress in reducing the amount of energy required to produce a dollar of output. In fact, the U.S. reduced its absolute level of CO2 emissions by 1.3 percent in 2006 while its economy grew by 3.3 percent.

Climate change policies should continue to strive to reduce energy intensity as the capital stock is replaced over the business cycle, promoting the development of new, cost-effective technologies for alternative energy production and conservation while encouraging the spread of market based reforms in the developing world. This approach is likely to be much more productive than adopting mandatory CO2 reduction targets that would sacrifice economic well- being and job growth with little or no long-term impact on global GHG emission growth.

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