Keep calm and carry on emitting: Cap-and-trade rules, local emissions and growth

Abstract

We estimate the impact of the cap-and-trade program (CATP) in California on regional greenhouse gas emissions and economic growth. Our preferred identification strategies, based on spatial distance and county-level contiguity, fail to provide evidence of a reduction in regional emissions or economic growth due to the CATP. Multi-state organizations do not transfer emissions to non-Californian facilities, but parent-level concentration in emissions changes, consistent with an insofar unexplored form of regulatory arbitrage. Overall, our results highlight the importance of a regional approach when designing climate policies and evaluating their effects.