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Article summary:

1. Governments around the world are implementing various forms of regulations to curb greenhouse gas emissions, but there is no consensus on optimal policy approaches.

2. The 2013 California cap-and-trade rule has real spillover effects across the United States due to firm financial constraints, with financially constrained firms reducing greenhouse gas emissions in California but significantly increasing emissions in other states.

3. Financially constrained firms reallocate their emissions away from California to other states in response to heightened regulatory costs that alter the relative net expected returns across plants, incentivizing them to emit at alternative locations that become relatively more attractive than continuing to emit in California after the regulatory change.