TY - JOUR
T1 - Pricing carbon in the US: A model-based analysis of power-sector-only approaches
AU - McKibbin, Warwick
AU - Morris, Adele
AU - Wilcoxen, Peter
PY - 2014
Y1 - 2014
N2 - One proposed climate policy is a "power-sector-only" approach that would focus exclusively on controlling carbon dioxide emissions from electricity generation. This paper uses an intertemporal computable general equilibrium model of the world economy called G-Cubed to compare a power-sector-only climate policy with two alternative economy-wide measures that either: (1) place the same price on carbon or (2) achieve the same cumulative emissions reduction as the program limited to the power sector. We find that the power-sector-only approach requires a carbon price to electric utilities that is almost twice the economy-wide carbon price that would achieve the same cumulative emissions. In addition, we find that the power-sector-only policy does not produce offsetting increases in emissions in other sectors or other countries. Rather, we find that domestic carbon emissions outside the power sector fall slightly relative to baseline as higher electricity prices slow overall economic activity. Global emissions leakage is negligible as the price of oil in other currencies changes little. All three policies reduce investment in the capital-intensive energy sector, which lowers imports of durable goods and strengthens the U.S. terms of trade.
AB - One proposed climate policy is a "power-sector-only" approach that would focus exclusively on controlling carbon dioxide emissions from electricity generation. This paper uses an intertemporal computable general equilibrium model of the world economy called G-Cubed to compare a power-sector-only climate policy with two alternative economy-wide measures that either: (1) place the same price on carbon or (2) achieve the same cumulative emissions reduction as the program limited to the power sector. We find that the power-sector-only approach requires a carbon price to electric utilities that is almost twice the economy-wide carbon price that would achieve the same cumulative emissions. In addition, we find that the power-sector-only policy does not produce offsetting increases in emissions in other sectors or other countries. Rather, we find that domestic carbon emissions outside the power sector fall slightly relative to baseline as higher electricity prices slow overall economic activity. Global emissions leakage is negligible as the price of oil in other currencies changes little. All three policies reduce investment in the capital-intensive energy sector, which lowers imports of durable goods and strengthens the U.S. terms of trade.
U2 - 10.1016/j.reseneeco.2013.11.007
DO - 10.1016/j.reseneeco.2013.11.007
M3 - Article
VL - 36
SP - 130
EP - 150
JO - Resource and Energy Economics
JF - Resource and Energy Economics
IS - 1
ER -