Controlling carbon emissions from U.S. power plants: how a tradable performance standard compares to a carbon tax

Warwick McKibbin, Adele Morris and Peter Wilcoxen

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Different pollution control policies, even if they achieve the same emissions goal, could have importantly different effects on the composition of the energy sector and economic outcomes. In this paper, we use the G-Cubed model of the global economy to compare two basic policy approaches for controlling carbon emissions from power plants: a tradable performance standard and a carbon tax. We choose these two approaches because they resemble two key options facing policymakers: continue implementing a performance standard approach under the Clean Air Act or adopt an excise tax on the carbon content of fossil fuels instead. Our goal is to highlight the important high-level differences in these basic approaches, abstracting from the details of specific policy proposals. We explore a wide variety of the illustrative policies’ economic outcomes including: changes in capital stocks and electricity production across eight types of generators, changes in end-user electricity prices, changes in gross domestic product (GDP), overall welfare impacts on the household sector and, finally, one outcome represented in the G-Cubed model and few others: short to medium-run changes in aggregate employment.

Pages: 27 pages
Date: 2015-08
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2015-30

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