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Greenhouse Gas Reductions under Low Carbon Fuel Standards?

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  • Stephen P. Holland
  • Jonathan E. Hughes
  • Christopher R. Knittel

Abstract

A low carbon fuel standard (LCFS) seeks to reduce greenhouse gas emissions by limiting the carbon intensity of fuels. We show this decreases high carbon fuel production but increases low carbon fuel production, possibly increasing net carbon emissions. The LCFS cannot be efficient, and the best LCFS may be nonbinding. We simulate a national LCFS on gasoline and ethanol. For a broad parameter range, emissions decrease, energy prices increase, abatement costs are large ($80 - $760 billion annually), and average abatement costs are large ($307 - $2,272 per CO2 metric ton). A cost effective policy has much lower average abatement costs ($60 - $868). (JEL Q54, Q58)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 1 (2009)
Issue (Month): 1 (February)
Pages: 106-46

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Handle: RePEc:aea:aejpol:v:1:y:2009:i:1:p:106-46

Note: DOI: 10.1257/pol.1.1.106
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  1. Espey, Molly, 1998. "Gasoline demand revisited: an international meta-analysis of elasticities," Energy Economics, Elsevier, vol. 20(3), pages 273-295, June.
  2. Dahl, Carol & Duggan, Thomas E., 1996. "U.S. energy product supply elasticities: A survey and application to the U.S. oil market," Resource and Energy Economics, Elsevier, vol. 18(3), pages 243-263, October.
  3. Aaron S. Edlin & Pinar Karaca-Mandic, 2006. "The Accident Externality from Driving," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 931-955, October.
  4. Farrell, Alexander E. & Sperling, Daniel & Arons, S.M. & Brandt, A.R. & Delucchi, M.A. & Eggert, A. & Farrell, A.E. & Haya, B.K. & Hughes, J. & Jenkins, B.M. & Jones, A.D. & Kammen, D.M. & Kaffka, S.R, 2007. "A Low-Carbon Fuel Standard for California Part 1: Technical Analysis," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt8zm8d3wj, Institute of Transportation Studies, UC Berkeley.
  5. J. Daniel Khazzoom, 1980. "Economic Implications of Mandated Efficiency in Standards for Household Appliances," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 21-40.
  6. Helfand, Gloria E, 1991. "Standards versus Standards: The Effects of Different Pollution Restrictions," American Economic Review, American Economic Association, vol. 81(3), pages 622-34, June.
  7. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-77, March.
  8. Jonathan E. Hughes & Christopher R. Knittel & Daniel Sperling, 2008. "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," The Energy Journal, International Association for Energy Economics, vol. 29(1), pages 113-134.
  9. Paul R. Portney & Ian W.H. Parry & Howard K. Gruenspecht & Winston Harrington, 2003. "Policy Watch: The Economics of Fuel Economy Standards," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 203-217, Fall.
  10. Pizer, William, 2005. "The Case for Intensity Targets," Discussion Papers dp-05-02, Resources For the Future.
  11. Farrell, Alexander E. & Sperling, Dan, 2007. "A Low-Carbon Fuel Standard for California, Part 1: Technical Analysis," Institute of Transportation Studies, Working Paper Series qt6j67z9w6, Institute of Transportation Studies, UC Davis.
  12. Farrell, Alexander & Sperling, Daniel, 2007. "A Low-Carbon Fuel Standard for California, Part 1: Technical Analysis," Institute of Transportation Studies, Working Paper Series qt5245b5kx, Institute of Transportation Studies, UC Davis.
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