The Economics of Decentralized Emission Control Strategies

Over the last decade, culminating in the Paris Agreement, international climate diplomacy has shifted from strategies that emphasize centralized global cooperation toward decentralized modes of action where states, provinces, cities, firms and other subnational actors lead the way. However, the economic costs of this decentralized approach to policy remain unknown and most economic analysis has emphasized the superiority of uniform global approaches to climate policy. Using the United States as an example, we represent the variation in state-level public support for climate action and thus plausible variation (by more than a factor of 4) in the stringency of state-led climate policy in an integrated assessment model with state-level detail in the U.S. (GCAM-USA). Almost regardless of the level of decarbonization, the overall cost to the economy from heterogeneous subnational policies is only one-tenth higher than optimal economy-wide policies. As the level of decarbonization moves from shallow (~40% cuts in 2050 emissions relative to 2005) to deep (80% cuts) even the states that adopt the most modest policies see rapid decarbonization of the power sector. By contrast, there is huge variation in other decarbonization strategies (e.g., the deployment of negative emissions technologies). Our study suggests that the benefits of decentralized climate action, for example, through political units experimenting with varied approaches to controlling emissions, might outweigh the costs of such action.