Quick, what's the best thing to come out of California? No, not the Beach Boys. No, not Ronald Reagan. No, not Interstate 5! The best thing to come out of California is clearly the seemingly unending stream of oppressive, prohibitory and proscriptive legislation that California inflicts upon it citizenship. Now, this may sound like sarcasm (and admittedly, they haven't always been doing so great lately), but it's not. California has led the way in banning negative externalities for decades.
California has regularly been among the first to ban or limit harmful chemicals such as pesticides, ozone pollution, phthalates, and greenhouse gas emissions. This is good, of course, for most Californians. But surprisingly, this has turned out to be good for the entire world.
The California effect refers to a situation in which environmental regulations adopted by one locality are adopted by other localities, particularly when the spread is due purely to laissez faire free market forces.
This concept is based primarily on the effect that California's tight auto emission standards had on not only the rest of America, but countries the world over. In 1966 the California Motor Vehicle Pollution Control Board set the first standards for hydrocarbon and carbon monoxide emissions. Ever since then the Federal government has been playing catch-up with California; even today California is pissing off the rest of America by insisting that cars become ever less noxious.
California, it turns out, is just big enough to really matter. California's purchasing power is enough that if a car manufacturer can't sell their cars there then they will take a big hit in sales. So car manufacturers started producing cars that polluted less. And obviously they weren't going to make a special car just for California, so soon all of America was driving cleaner cars. This made it easy for the Federal government to require stronger anti-pollution laws.
These days economists and environmentalists are more likely to credit countries like the USA and Germany as initiators of the California effect, but the name has stuck.
This is in stark contrast to the dreaded (and perhaps entirely imaginary) 'race to the bottom' effect, in which countries compete with each other to have the worst environmental standards. There is still a lot of debate about how important the California effect is in different areas, and if it is a feasible method of change. It does seem to be a practical way to reduce pollution and other environmental problems, and also human right abuses. However, setting limits on what consumers can buy has economic costs, and patrolling to see that products and manufacturing practices meet the prescribed standards has further costs, so the California effect isn't always the most cost-effective way of changing the world. In some cases, though, it can work wonders.
The term 'California effect' was coined by economist David Vogel. I believe the first published reference to it was in his book Trading Up: Consumer and Environmental Regulation in a Global Economy (Harvard University Press, 1995). He may have named it with the well-known Delaware effect in mind.
Yet another entry in Wintergreen: An Earth Quest.