Carbon Pricing, Clean Electricity Standards, and Clean Electricity Subsidies on the Path to Zero Emissions

Severin Borenstein and Ryan Kellogg

No 30263, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We categorize the primary incentive-based mechanisms under consideration for addressing greenhouse gas emissions from electricity generation—pricing carbon, setting intensity standards, and subsidizing clean energy—and compare their market outcomes under similar expansions of clean electricity generation. While pricing emissions gives strong incentives to first eliminate generation with the highest social cost, a clean energy standard incentivizes earliest phaseout of the generation with the highest private cost. We show that the importance of this distinction depends on the correlation between private costs and emissions rates. We then estimate this correlation for US electricity generation and fuel prices as of 2019. The results indicate that the emissions difference between a carbon tax and clean energy standard that phase out fossil fuel generation over the same timeframe may actually be quite small, though it depends on fossil fuel prices during the phaseout. We also discuss how each of these policy options is likely to impact electricity prices, quantity demanded, government revenue, and economic efficiency. Large pre-existing markups of retail electricity prices over marginal costs are likely to considerably weaken or even reverse the usual assumed efficiency advantage of carbon pricing policies over alternatives, including direct subsidization of clean electricity generation.

JEL-codes: L94 Q52 Q54 Q58 (search for similar items in EconPapers)
Date: 2022-07
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
Note: EEE
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Published as Carbon Pricing, Clean Electricity Standards, and Clean Electricity Subsidies on the Path to Zero Emissions , Severin Borenstein, Ryan Kellogg. in Environmental and Energy Policy and the Economy, volume 4 , Kotchen, Deryugina, and Stock. 2023

Downloads: (external link)
http://www.nber.org/papers/w30263.pdf (application/pdf)

Related works:
Journal Article: Carbon Pricing, Clean Electricity Standards, and Clean Electricity Subsidies on the Path to Zero Emissions (2023)
Chapter: Carbon Pricing, Clean Electricity Standards, and Clean Electricity Subsidies on the Path to Zero Emissions (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:30263

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w30263

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().