The United States has witnessed significant state-level action on climate change mitigation over the past two decades. States have implemented diverse policies, including market restructuring for electricity, renewable portfolio standards (RPS), emission limits, and renewable energy incentives. However, a comprehensive assessment of these policies' effectiveness has been hampered by the lack of a holistic measure of state climate policy. This study addresses this gap by creating an aggregate index of state climate policies, allowing for a more comprehensive analysis of their environmental and economic consequences than previously possible. The research is crucial because understanding the effectiveness of state-level initiatives is paramount for informing future climate policy at both state and national levels. The potential economic consequences of climate action are a frequent point of contention, making a rigorous assessment of their impact on state economies essential for policy debates. This paper, therefore, aims to provide a robust and comprehensive analysis of the multifaceted effects of state climate policies, focusing on their influence on CO2 emissions and state economies.

Existing research on state climate policy often focuses on individual policies like RPS, yielding mixed results. While some studies show that RPS policies increase renewable generation capacity, others find no significant difference in renewable energy proportions between states with and without RPS. Similarly, research on the impact of other policies, such as public benefits funds (PBF), net metering (NEM), and green power options (GPO), reveals inconsistent findings. This inconsistency highlights the need for a holistic approach that considers the combined effects of multiple policies, accounting for variations in policy design and stringency across states. This study builds upon previous research by using a novel approach to synthesize information from various policies into a comprehensive index of state climate policy, providing a more nuanced understanding of the overall impact of these policies.

The researchers developed a comprehensive index of state climate policies (2000-2020) using Bayesian factor analysis. This method aggregates information from 25 individual policies, including RPS, emission standards, energy efficiency targets, and renewable energy incentives. Each policy's stringency was coded as continuous, ordinal, or dichotomous, reflecting the level of detail available in the data. The Bayesian factor analysis approach weights policies according to their informational content regarding a state's commitment to clean energy, accommodating variations in policy instrument design across states. The resulting index provides a holistic measure of state climate policy stringency, allowing for comparisons across states and over time. To examine the environmental and economic consequences, time-series cross-sectional OLS regression models were employed. These models controlled for state-fixed effects (to account for time-invariant differences), region-year fixed effects (to account for annual shocks and trends), and measurement error in the climate policy index (using the Method of Composition). The dependent variables included CO2 emissions (total and electricity sector), energy production and consumption, electricity prices, GDP, jobs, and wages. Data sources included the US Energy Information Administration (EIA) for energy and emissions data, and the Bureau of Economic Analysis for economic data. Construct and convergent validity of the index were also assessed using comparisons with existing state-level energy efficiency scorecards and measures of state policy liberalism.

The analysis revealed a strong association between stricter state climate policies and lower CO2 emissions. A one-standard-deviation increase in climate policy stringency was linked to a 5% reduction in per-capita electricity-sector CO2 emissions and a 2% reduction in economy-wide per-capita CO2 emissions. This finding was consistent both cross-sectionally and over time. Interestingly, the study did not find a direct effect of increased climate policy on renewable energy production or a decrease in fossil fuel production. Instead, the association appears to be primarily driven by reduced overall electricity consumption. This could indicate the effectiveness of climate policies in spurring energy efficiency improvements. The analysis further showed no evidence that stricter climate policies negatively impacted state economies. Specifically, there were no statistically significant effects on electricity prices, GDP, job growth, or wages. The figures illustrate the evolution of climate policy stringency across states over time, revealing variations in policy commitments. The maps highlight the spatial distribution of climate policy stringency across the US states. Comparisons with simpler measures of climate policy (e.g., RPS targets, number of policies enacted) emphasize the value of the holistic index in capturing variations in policy regimes that single-policy measures would miss. The results demonstrate that incorporating numerous policies and accounting for their variations provide a more detailed understanding of the effects of state climate policy.

The study's findings confirm the significant impact of state-level climate policies on reducing CO2 emissions. The lack of negative economic consequences counters common arguments against climate action. The observed reduction in electricity consumption, rather than a direct increase in renewable energy generation, suggests that energy efficiency improvements are a key mechanism through which climate policies achieve emission reductions. This finding aligns with projections of cost-neutrality under subnationally heterogeneous climate policies due to energy trading between states. The study's use of a comprehensive climate policy index provides a more robust assessment compared to analyses focusing on individual policies. However, the study acknowledges the limitations of its current focus, primarily on the electricity sector. Future research could extend the analysis to other sectors and explore the distributional aspects of climate policy impacts across different socio-economic groups. The results underscore the importance of a multifaceted approach to climate policy and highlight that policy effectiveness can be measured in ways beyond direct increases in renewable energy production. The observed results, while encouraging, highlight the need for substantially greater policy ambition to achieve the Paris Agreement goals.

This research contributes a novel, holistic measure of state climate policy, demonstrating a strong link between stronger policies and lower CO2 emissions without negative economic consequences. The findings highlight the importance of comprehensive policy approaches and suggest that energy efficiency improvements play a crucial role in achieving emission reductions. However, the current rate of policy adoption is insufficient to meet the Paris Agreement targets, necessitating more ambitious state and national policies. Future research should investigate the political drivers of climate policy, explore public perceptions of energy and climate policy in relation to the index, and analyze the distributional effects of climate policy outcomes. Expanding the index to encompass additional policy areas and broadening the scope of the analyses will further enhance our understanding of climate policy’s impact.

The study primarily focuses on policies affecting the electricity sector, potentially underrepresenting the impacts of policies in other sectors. The analysis relies on publicly available data, which might not capture all aspects of climate policy implementation. While the study accounts for measurement error in the climate policy index, it still presents a potential limitation in the analysis. Future work could explore a more detailed measure of climate policy stringency and incorporate a wider range of policy areas and economic indicators. The study's focus on US states might limit the generalizability of the results to other contexts.