Local Solutions to Global Problems: Policy Choice and Regulatory Jurisdiction

James Bushnell, Carla Peterman, Catherine Wolfram

NBER Working Paper No. 13472
Issued in October 2007
NBER Program(s):Environment and Energy Economics, Industrial Organization

This paper considers the efficiency of various types of environmental regulations when they are applied locally to pollutants whose damages extend outside the jurisdiction of the local regulator. We draw on examples from state- and city-level efforts to address climate change by enacting policies to reduce greenhouse gases. While previous work has noted the possibility for leakage, whereby the polluting sources move outside the jurisdiction of the regulation in order to escape it, we note an additional problem when policies are targeted downstream at consumers of goods whose production creates pollution. Specifically, we show how consumer-based policies can be circumvented by a simple reshuffling of who is buying from whom. We argue that the leakage and reshuffling problems are most pronounced with more flexible or market-based regulations. We conclude that localities may have the most effect on global pollutants when they enact efficiency standards or targeted subsidies.

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Document Object Identifier (DOI): 10.3386/w13472

Published: James Bushnell & Carla Peterman & Catherine Wolfram, 2008. "Local Solutions to Global Problems: Climate Change Policies and Regulatory Jurisdiction," Review of Environmental Economics and Policy, Oxford University Press for Association of Environmental and Resource Economists, vol. 2(2), pages 175-193, Summer.

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