economics of pollution in california

The economics of global warmingBy Andrew Leckey Tribune Media Services
Posted April 23 2007

As I write this, a rock band plays loudly down the
block at a "Stop Global Warming" university rally, and Arnold Schwarzenegger is
staring right at me.Well, not actually Arnold himself.The California governor's
famous face is staring out from the covers of Newsweek (headline "Save the
Planet -- or Else") and Fast Company ("His Green Ultimatum Will Create Huge New
Markets Across California") sitting on my desk.Schwarzenegger, whose Humvees now
run on hydrogen and biodiesel fuel, has become a national figure in the push for
reducing greenhouse gas emissions.The aggressive California Global Warming
Solutions Act, scheduled to go into effect in January, mandates a 25 percent
reduction of carbon dioxide emissions by 2020. As Schwarzenegger recently met
with federal Environmental Protection Agency officials in Washington, asking for
a waiver in order to enact that state law, he was talking up green issues all
over town.The band should not be confused with Al Gore's "Live Earth" concert
series planned for July. "Live Earth" will raise money to battle climate
change.At the corporate level, ConocoPhillips became the first major U.S. oil
company to call for a federal global warming emission cap. It joins BP PLC in
the U.S. Climate Action Partnership in espousing that goal."We believe that the
science is quite compelling and that climate change is certainly attributed to
human activity and to the substantial use of fossil fuels," Jim Mulva, chairman
and chief executive of ConocoPhillips said.The U.S. Supreme Court recently ruled
the federal government is responsible for regulating carbon dioxide emissions
from cars. The Bush administration has refused to impose mandatory limits and
also contends any global agreement must include China and India.Looking at this
from a business standpoint, a federal emissions cap most likely would be less
stringent on oil and auto companies than a wide variety of rules enacted by
states. The auto industry would prefer an across-the-board emissions cap for all
industries, including utilities, rather than one that singles out cars.As global
warming emerges as a national priority, the way it is tackled will affect many
industries and the overall economy. Companies are beginning to take positions
and choose up sides, not just on direction of the action but its
forcefulness.The public ultimately dictates the course taken, since negative
publicity and financial pressure gains every company's total attention. While
the goal of a better environment seems a "no-brainer," the process isn't. Within
a complex unfolding drama with global repercussions, the motives of all the
players involved must be scrutinized.

This article discusses the economic impact of a cap on federal emissions. A new law called the California Global Warming Solutions Act calls for a 25% decrease in emissions. From an economic standpoint, saying that companies have to pay a set amount for each ton of emission would be a better choice. This way, companies have more incentive to cut down on their emissions, while with the CGWSA they have no incentive for a decrease more than 25%. This is called a Pigovian Tax and is more economically sound than government mandates.