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INCENTIVES, MARGINS, AND COST EFFECTIVENESS IN COMPREHENSIVE CLIMATE POLICY FOR THE POWER SECTOR

Anthony Paul (), Karen Palmer () and Matthew Woerman ()
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Anthony Paul: Resources for the Future, 1616 P Street, NW, Washington, DC 20036, USA
Karen Palmer: Resources for the Future, 1616 P Street, NW, Washington, DC 20036, USA
Matthew Woerman: Department of Agricultural and Resource Economics, 207 Giannini Hall #3310, University of California, Berkeley CA 94720-3310, USA

Climate Change Economics (CCE), 2015, vol. 06, issue 04, 1-27

Abstract: Substantially reducing carbon dioxide (CO2) emissions from electricity production will require a transformation of the resources used to produce power. Several different incentive-based policies have been proposed ranging from setting minimums for clean generation sources to maximum emission rate standards and caps on CO2 emissions, all of which are allowed under the EPA’s Clean Power Plan. This paper analyzes the economic consequences of a suite of different flexible and comprehensive policies to reduce CO2 emissions from the power sector, including a carbon tax, a tradable emissions rate performance standard, and two versions of a clean energy standard (CES). Modeling results suggest that policies that encourage emissions reductions along multiple margins can be substantially more cost-effective than less flexible policies. The margins are intra and inter fuel, and technology substitution, electricity demand, and generator fuel efficiency. Despite cost differences, all of the policies result in substantial increases in social welfare.

Keywords: Clean energy standard; tradable performance standard; carbon tax; climate policy; electricity (search for similar items in EconPapers)
Date: 2015
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