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Federal Coal Program Reform, the Clean Power Plan, and the Interaction of Upstream and Downstream Climate Policies

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  • Todd D. Gerarden
  • W. Spencer Reeder
  • James H. Stock

Abstract

Can supply-side environmental policies that limit the extraction of fossil fuels reduce CO2 emissions? This paper studies interactions between a specific supply-side policy—a carbon surcharge on federal coal royalties—and regulation of emissions from the power sector under the Clean Air Act. Estimates from a detailed dynamic model of the power sector suggest that, absent new downstream regulation, a royalty surcharge equal to the social cost of carbon would generate three-quarters of the emissions reductions originally projected for the Clean Power Plan (CPP), with an average abatement cost roughly equal to the social cost of carbon. Were the CPP in place, the royalty surcharge would reduce emissions by reducing leakage and causing the CPP to be nonbinding in some scenarios.

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  • Todd D. Gerarden & W. Spencer Reeder & James H. Stock, 2020. "Federal Coal Program Reform, the Clean Power Plan, and the Interaction of Upstream and Downstream Climate Policies," American Economic Journal: Economic Policy, American Economic Association, vol. 12(1), pages 167-199, February.
    • Handle: RePEc:aea:aejpol:v:12:y:2020:i:1:p:167-99
    DOI: 10.1257/pol.20160246
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    1. James B. Bushnell & Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2017. "Strategic Policy Choice in State-Level Regulation: The EPA's Clean Power Plan," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 57-90, May.
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    6. Samuel Fankhauser & Cameron Hepburn & Jisung Park, 2010. "Combining Multiple Climate Policy Instruments: How Not To Do It," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 1(03), pages 209-225.
    7. Goulder, Lawrence H. & Jacobsen, Mark R. & van Benthem, Arthur A., 2012. "Unintended consequences from nested state and federal regulations: The case of the Pavley greenhouse-gas-per-mile limits," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 187-207.
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    Cited by:

    1. Prest, Brian C. & Stock, James H., 2023. "Climate royalty surcharges," Journal of Environmental Economics and Management, Elsevier, vol. 120(C).
    2. Grischa Perino & Robert A. Ritz & Arthur van Benthem, 2019. "Overlapping Climate Policies," NBER Working Papers 25643, National Bureau of Economic Research, Inc.
    3. Böhringer, Christoph & Rosendahl, Knut Einar, 2022. "Europe beyond coal – An economic and climate impact assessment," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
    4. Bergholt, Drago & Røisland, Øistein & Sveen, Tommy & Torvik, Ragnar, 2023. "Monetary policy when export revenues drop," Journal of International Money and Finance, Elsevier, vol. 137(C).
    5. Brett Watson & Ian Lange & Joshua Linn, 2023. "Coal demand, market forces, and U.S. coal mine closures," Economic Inquiry, Western Economic Association International, vol. 61(1), pages 35-57, January.
    6. Nathan Ratledge & Laura Zachary & Chase Huntley, 2022. "Emissions from fossil fuels produced on US federal lands and waters present opportunities for climate mitigation," Climatic Change, Springer, vol. 171(1), pages 1-8, March.
    7. Michael Lazarus & Harro van Asselt, 2018. "Fossil fuel supply and climate policy: exploring the road less taken," Climatic Change, Springer, vol. 150(1), pages 1-13, September.
    8. Lassi Ahlvik & Jørgen Juel Andersen & Jonas Hveding Hamang & Torfinn Harding, 2022. "Quantifying supply-side climate policies," Working Papers No 01/2022, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    9. Zhang, Duan & Chen, Yihsu & Tanaka, Makoto, 2018. "On the effectiveness of tradable performance-based standards," Energy Economics, Elsevier, vol. 74(C), pages 456-469.
    10. Kenneth Gillingham & Marten Ovaere & Stephanie Weber, 2021. "Carbon Policy and the Emissions Implications of Electric Vehicles," CESifo Working Paper Series 8974, CESifo.
    11. Peszko,Grzegorz & Van Der Mensbrugghe,Dominique & Golub,Alexander Alexandrovich, 2020. "Diversification and Cooperation Strategies in a Decarbonizing World," Policy Research Working Paper Series 9315, The World Bank.
    12. Kacker, Kanishka & Lange, Ian, 2022. "Inter-regional coal mine competition in the US: Evidence from rail restrictions," Energy Economics, Elsevier, vol. 110(C).
    13. Bielen, David A., 2018. "Do differentiated performance standards help coal? CO2 policy in the U.S. electricity sector," Resource and Energy Economics, Elsevier, vol. 53(C), pages 79-100.
    14. Peter Erickson & Michael Lazarus, 2018. "Would constraining US fossil fuel production affect global CO2 emissions? A case study of US leasing policy," Climatic Change, Springer, vol. 150(1), pages 29-42, September.

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    More about this item

    JEL classification:

    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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