Implementing cap‐and‐trade in Washington to reduce greenhouse gas emissions: regional regulation of a global problem and the risk of carbon leakage

Abstract

This capstone research provides exploratory analysis of a regional cap‐and‐trade (CAT) program to limit greenhouse gas (GHG) emissions. The effectiveness of using a regional program to address a global issue has limitations; one of these limitations includes the possibility that firms will avoid operating in regions with strict GHG regulations. This analysis includes an assessment of the potential mobility of firms to move outside the region to avoid GHG emission regulations; such movement of firms is called carbon leakage. If firms move outside the region, they will still emit GHGs; so there is no net reduction in global GHG emissions, just a reduction in regional emissions. Another consequence of carbon leakage is the adverse economic impact to the state from the loss of employment earnings and tax revenue because of firm mobility.