On May 18th, 2016, OnPoint expert Dr. Stephen Hamilton presented the results of his recent research and answered stakeholder questions as part of a public workshop hosted by the California Air Resources Board (“CARB”) at their headquarters in downtown Sacramento. The workshop marked the initial public release of three studies funded by CARB to investigate potential improvements to the current metrics used for determining the risk of emissions leakage in various industrial sectors. CARB commissioned three studies to inform this sector-by-sector assessment in 2012, and the studies were completed earlier this month.
The first two studies–led by researchers at the University of California, Berkeley, and Resources for the Future–measured international and domestic emissions leakage, respectively, for most industrial sectors that are directly regulated under the Cap-and-Trade program. The third study, led by Dr. Hamilton, measured the potential market transfer and emissions leakage in select food processing industries within the state that would result from the enforcement of proposed greenhouse gas (“GHG”) regulations under California’s Cap-and-Trade Program.
GHG regulations that raise energy input prices at food processing plants in California have the effect of selectively raising the cost of food processing for California plants, creating a cost advantage for unregulated plants in other production regions. The analysis conducted by Dr. Hamilton demonstrates how selective GHG regulation in California’s Cap-and-Trade Program can result in the substantial market transfer of production from California food processing industries to food processors that produce in unregulated regions outside of the state. These market transfer effects hinder well-functioning GHG regulations by reducing regional manufacturing activity in the state, thus decreasing both tax revenue and employment. Additionally, the associated transfer of production from California to other regions causes leakage of GHG emissions across state (and national) lines, dampening the effect of GHG regulations on global climate outcomes.
The results of Dr. Hamilton’s study will help to inform CARB about critically important aspects of the policy that need to be evaluated as the program’s third compliance period comes into effect in 2018. Dr. Hamilton’s work will therefore play a significant role in the formation and implementation of effective policies and regulations that will help ensure California is at the forefront of the battle to combat issues involving global air pollution and emissions leakage–two major factors driving global climate change.