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THE ECONOMIC COSTS AND CO-BENEFITS OF CARBON TAXATION: A GENERAL EQUILIBRIUM ASSESSMENT

Jared Woollacott ()
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Jared Woollacott: RTI International, 3040 East Cornwallis Road, 12194, Research Triangle Park, NC, 27709-2194, USA

Climate Change Economics (CCE), 2018, vol. 09, issue 01, 1-22

Abstract: I examine the general equilibrium costs of climate policies that levy taxes on carbon dioxide (CO2) emissions in the United States and return the revenue in the form of lump-sum rebates and tax relief over the years 2020 to 2040 using the US regional version of the Applied Dynamic Analysis of the Global Economy (ADAGE-US) forward-looking dynamic Computable General Equilibrium (CGE) model. I approximate the value of co-benefits to these policies that arise from concomitant reductions in nongreenhouse gas (GHG) emissions using the CO-Benefits Risk Assessment model (COBRA). There is significant heterogeneity in costs and co-benefits from climate policies across space and income. Policy costs are generally less than 0.5% in equivalent variation terms (between a few tens of dollars and several hundred per household, depending on the income quintile), can be fully neutralized for the lowest- quintile households at a modest increase in overall policy cost, and tend to be lower for upper-quintile households in coastal regions. The policy co-benefit values range widely across regions, approximately $150–1250 per household, exceeding the gross cost of the policy for many households, particularly those in the Midwest. Last, I identify a marginal welfare cost of $58∕tCO2 and a marginal co-benefit of $31∕tCO2 at a national level over all households, which implies a required climate benefit of $27∕tCO2 or less to justify the level of abatement achieved by a $25∕tCO2 tax growing at 5%.

Keywords: Climate policy; general equilibrium; carbon tax; co-benefits (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S2010007818400067

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