Talking in Tonnes, Negotiating in Dollars: Politics of Carbon Markets in CA

Carbon markets promise environmental benefits and economic efficiency, but political forces constrain their ambition and render their implementation opaque. Drawing on case studies from California, I show how carbon prices are formed and how money flows in two multi-billion-dollar carbon markets. Although state climate policymakers emphasize the primacy of greenhouse gas emissions accounting across the state’s policy portfolio, actual emissions accounting practices are often lax, ad hoc, and internally inconsistent, with patterns that reflect the influence of political interest groups and the state regulator’s strategic objectives.

As California enters its third decade of climate policymaking and looks toward a 2045 net-zero emissions target, rising carbon prices and their impacts on consumer-facing energy prices are likely to prompt a confrontation between stakeholder groups. To keep prices low, will California continue to rely on lax accounting practices and low-quality offsetting projects, largely based outside the state? Or will concerns around costs motivate carbon-market design that explicitly limits costs and directs a larger share of funding to in-state activities that support California’s decarbonization agenda?

Danny Cullenward is a climate economist and lawyer focused on the design and implementation of scientifically grounded climate policy. His book, Making Climate Policy Work (with David G. Victor), shows how political forces make green industrial policy more effective than carbon pricing. Cullenward is a senior fellow with the Kleinman Center for Energy Policy, a Research Fellow with the Institute for Carbon Removal Law and Policy at American University, and the Vice Chair of California’s Independent Emissions Market Advisory Committee. He previously held research and teaching appointments at UC Berkeley, Lawrence Berkeley National Laboratory, the Carnegie Institution for Science, and Stanford University.

Arthur van Benthem is an associate professor of business economics and public policy at Wharton. His research specializes in environmental and energy economics. His recent work studies the unintended consequences of environmental legislation and the economic efficiency of energy policies. His current research focuses on markets for transportation, renewable energy, and oil & gas.

He also writes for general audiences about economics, energy and the environment. His columns have appeared in the Boston Globe, the Economist, the Philadelphia Inquirer, and the Wall Street Journal, among others.

Please note this is an in-person event. We look forward to welcoming guests to the Kleinman Center’s Energy Forum. A recording will be available on the Kleinman Center website the following day.

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