How Does State-Level Carbon Pricing in the United States Affect Industrial Competitiveness?

Brendan Casey, Wayne Gray, Joshua Linn and Richard D. Morgenstern

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: Pricing carbon emissions from an individual jurisdiction may harm the competitiveness of local firms, causing the leakage of emissions and economic activity to other regions. Past research concentrates on national carbon prices, but the impacts of subnational carbon prices could be more severe due to the openness of regional economies. We specify a flexible model to capture competition between a plant in a state with electric sector carbon pricing and plants in other states or countries without such pricing. Treating energy prices as a proxy for carbon prices, we estimate model parameters using confidential plant-level Census data, 1982–2011. We simulate the effects on manufacturing output and employment of carbon prices covering the Regional Greenhouse Gas Initiative (RGGI) in the Northeast and Mid-Atlantic regions. A carbon price of $10 per metric ton on electricity output reduces employment in the regulated region by 2.7 percent, and raises employment in nearby states by 0.8 percent, although these estimates do not account for revenue recycling in the RGGI region that could mitigate these employment changes. The effects on output are broadly similar. National employment falls just 0.1 percent, suggesting that domestic plants in other states as opposed to foreign facilities are the principal winners from state or regional carbon pricing.

JEL-codes: Q4 Q52 Q58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-06
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: How Does State-Level Carbon Pricing in the United States Affect Industrial Competitiveness? (2022)
Working Paper: How Does State-Level Carbon Pricing in the United States Affect Industrial Competitiveness? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:20-21

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