Cap-and-trade, crowding out, and the implications for municipal climate policy motivations

Abstract

Cities have emerged as important actors in climate change policy, implementing measures to reduce emissions from transportation, buildings, and waste. More recently, states such as California have implemented cap-and-trade programs to control greenhouse gases. However, a state-level cap handcuffs cities: by fixing emissions at the level of the cap, it precludes local governments from further reducing aggregate emissions. In this paper, we examine whether cities respond to the changed incentives presented by state-level programs. We find no evidence for crowding out: cities plan their emission reductions in similar ways regardless of state-level cap-and-trade programs. Our results suggest that cities likely have a range of motivations for their climate policy efforts- not simply a altruistic desire to improve the global environment.