Cap-and-Trade Throws a Wrench Into the Gears of Green Consumerism
Last week, Severin posted a great piece on household electricity consumption. Armed with a simple metering device and your energy bill, you can easily measure how your various household appliances affect your energy consumption and your pocketbook.
Understanding the link between your appliance use and your energy bills is important. I hope Santa brought everyone a kill-a-watt to use for this purpose. But for many households, cost savings alone provide insufficient motivation to reduce energy consumption.
Purveyors of energy efficiency improvements often highlight environmental benefits – “save energy and fight climate change!” – to motivate households to pursue efficiency improvements:
Source: Team Energy Star website
As with other voluntary contributions to the public good, finding ways to reduce your household’s environmental impacts via energy consumption choices can generate a “warm glow” – the positive feeling that results from doing your part to advance some larger social cause. (Notably, a recent PNAS paper finds that highlighting the environmental benefits of energy efficiency can have the opposite effect for some consumers).
What many people may not realize, however, is that cap-and-trade programs can throw a wrench into these attempts at green consumerism. In principle, once a binding cap on emissions has been imposed, any noble steps you take to reduce your personal emissions footprint will be offset by some other regulated source.
Trading warm glows for warm toes in California?
When cap-and-trade came to California last year, it affected the way we thought about electricity consumption in our house. Before the cap was introduced, the climate change impact of a marginal reduction in our household energy use may have been miniscule, but it was not zero. Keeping our electricity consumption down thus offered an (admittedly pathetic) means of alleviating some of our deep-seated climate guilt.
Last January, emissions from California electricity providers and large, emissions-intensive industrial facilities were brought under a greenhouse gas cap-and-trade program. Once emissions from the electricity sector were capped, electricity conservation became less appealing for us. On cold nights we have started to run electric space heaters in our home office and baby’s bedroom to keep things warmer. Twinkling Christmas lights brought more joy than carbon-guilt this holiday.
Cap-and-trade notwithstanding, efforts to slow climate change via household energy consumption choices need not grind to a halt. Here are some factors to keep in mind as you weigh your energy consumption options:
- Glow California! Some have argued that the real importance of California’s cap-and-trade program is that it may encourage other jurisdictions to follow suit. As Catherine pointed out in a recent interview, a year’s worth of greenhouse gas emissions reductions in California are wiped out in one week of Chinese growth. The importance of regional climate change initiatives has less to do with reductions in regional emissions and more to do with proof of concept. If California can demonstrate how to set and achieve emissions reduction targets, this can increase the likelihood that other actors will pursue similar strategies, thus advancing global mitigation efforts. Under a binding cap, you may not be reducing global carbon emissions when you upgrade to a more efficient appliance, but you will be helping California to successfully meet its emissions reduction targets.
- Focus your efforts on uncapped sectors and sources (such as aviation): If your carbon footprint looks like mine, the vast majority of your carbon footprint comes from air travel. Although aviation emissions are covered by the EU ETS, they are not covered by the California cap. Cutting back on your air miles (outside the EU) will translate into real emissions reductions.
- Finally, there is a good chance that total emissions in California will be below the cap…. To provide some degree of compliance cost certainty, California policy makers have established a price floor that rises slowly over time. Aggressive complementary measures (such as the renewable portfolio standard and energy efficiency standards), together with a sluggish economy, are driving demand for emissions permits down. It is possible – if not likely- that prices will hit the floor. If this happens, the cap-and-trade program will function like a tax regime. Aggregate emissions will no longer be pre-determined by policy-makers, and the link between household level electricity consumption decisions and aggregate environmental impacts will be restored.
In sum, if you are concerned about climate change, it is worth paying attention to the policies and regulations that determine how your consumer choices relate to the bigger picture.
Meredith Fowlie is an Assistant Professor of Agriculture and Resource Economics at the University of California, Berkeley. Prior to joining UC Berkeley, she was an Assistant Professor of Economics and Public Policy at the University of Michigan. She received a MSc in Environmental Economics from Cornell University in 2000 and PhD in Environmental and Resource Economics from UC Berkeley in ...
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