IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v158y2021ics0301421521003967.html
   My bibliography  Save this article

The short-term impact on emissions and federal tax revenue of a carbon tax in the U.S. electricity sector

Author

Listed:
  • Carroll, Deborah A.
  • Stevens, Kelly A.

Abstract

Due to low natural gas prices and the environmental advantages of natural gas combined cycle (NGCC) compared to coal, NGCC is replacing coal generators as the inframarginal providers of electricity. However, on average, NGCCs are running only 54 percent of the time. Utilizing excess NGCC capacity, as a substitute for coal generation, is a short-term policy solution for reducing greenhouse gases. In this research, we evaluate the impact of a carbon tax on substitution of natural gas for coal in the U.S. electricity sector. Through fixed effects regression and counterfactual calculations, we analyze data from 2003 to 2017 to evaluate the impact of a carbon tax on NGCC utilization, carbon emissions, and federal tax revenue between 2020 and 2030. We find the highest marginal increase in NGCC utilization happens with a carbon tax priced at $10/ton. Depending on future estimated changes in natural gas capacity, a $10 carbon tax would reduce carbon emissions between 1.39 and 1.55 billion metric tons per year and generate $106.47 to $118.33 billion in net revenue. The carbon tax we propose would be simpler to implement than an economy-wide policy and would still lead to significant carbon reductions and federal tax revenue in the short-run.

Suggested Citation

  • Carroll, Deborah A. & Stevens, Kelly A., 2021. "The short-term impact on emissions and federal tax revenue of a carbon tax in the U.S. electricity sector," Energy Policy, Elsevier, vol. 158(C).
    • Handle: RePEc:eee:enepol:v:158:y:2021:i:c:s0301421521003967
    DOI: 10.1016/j.enpol.2021.112526
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421521003967
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2021.112526?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Soren Anderson & Ioana Marinescu & Boris Shor, 2023. "Can Pigou at the Polls Stop Us Melting the Poles?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(4), pages 903-945.
    2. repec:hal:spmain:info:hdl:2441/jff6fcqc8e6bbhnlvps4rou6 is not listed on IDEAS
    3. Kelly A. Stevens, 2018. "Natural Gas Combined Cycle Utilization: An Empirical Analysis of the Impact of Environmental Policies and Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    4. Bistline, John E., 2014. "Natural gas, uncertainty, and climate policy in the US electric power sector," Energy Policy, Elsevier, vol. 74(C), pages 433-442.
    5. Paul L. Joskow, 2006. "Markets for Power in the United States: An Interim Assessment," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-36.
    6. Kaufmann, Robert K. & Hines, Edward, 2018. "The effects of combined-cycle generation and hydraulic fracturing on the price for coal, oil, and natural gas: Implications for carbon taxes," Energy Policy, Elsevier, vol. 118(C), pages 603-611.
    7. Verdolini, Elena & Vona, Francesco & Popp, David, 2018. "Bridging the gap: Do fast-reacting fossil technologies facilitate renewable energy diffusion?," Energy Policy, Elsevier, vol. 116(C), pages 242-256.
    8. Stewart Elgie & Jessica McClay, 2013. "Policy Commentary/Commentaire BC's Carbon Tax Shift Is Working Well after Four Years (Attention Ottawa)," Canadian Public Policy, University of Toronto Press, vol. 39(s2), pages 1-10, August.
    9. Gilbert E. Metcalf, 2009. "Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 63-83, Winter.
    10. Daniel T. Kaffine, Brannin J. McBee, and Jozef Lieskovsky, 2013. "Emissions Savings from Wind Power Generation in Texas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    11. Christopher Knittel & Konstantinos Metaxoglou & Andre Trindade, 2016. "Are we fracked? The impact of falling gas prices and the implications for coal-to-gas switching and carbon emissions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 32(2), pages 241-259.
    12. Lin, Boqiang & Li, Xuehui, 2011. "The effect of carbon tax on per capita CO2 emissions," Energy Policy, Elsevier, vol. 39(9), pages 5137-5146, September.
    13. Alexander R. Barron & Allen A. Fawcett & Marc A. C. Hafstead & James R. Mcfarland & Adele C. Morris, 2018. "Policy Insights From The Emf 32 Study On U.S. Carbon Tax Scenarios," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-47, February.
    14. Warwick J. McKibbin & Adele C. Morris & Peter J. Wilcoxen & Yiyong Cai, 2015. "Carbon Taxes and U.S. Fiscal Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(1), pages 139-156, March.
    15. Doyle, Matthew & Fell, Harrison, 2018. "Fuel prices, restructuring, and natural gas plant operations," Resource and Energy Economics, Elsevier, vol. 52(C), pages 153-172.
    16. Brehm, Paul, 2019. "Natural gas prices, electric generation investment, and greenhouse gas emissions," Resource and Energy Economics, Elsevier, vol. 58(C).
    17. Lafrancois, Becky A., 2012. "A lot left over: Reducing CO2 emissions in the United States’ electric power sector through the use of natural gas," Energy Policy, Elsevier, vol. 50(C), pages 428-435.
    18. Joseph A. Cullen & Erin T. Mansur, 2017. "Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach Using the Shale Revolution," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 106-133, August.
    19. Yael Parag & Stuart Capstick & Wouter Poortinga, 2011. "Policy attribute framing: A comparison between three policy instruments for personal emissions reduction," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(4), pages 889-905, September.
    20. Harrison Fell & Daniel T. Kaffine, 2018. "The Fall of Coal: Joint Impacts of Fuel Prices and Renewables on Generation and Emissions," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 90-116, May.
    21. Linn, Joshua & Anna Muehlenbachs, Lucija & Wang, Yshuang, 2014. "How Do Natural Gas Prices Affect Electricity Consumers and the Environment?," RFF Working Paper Series dp-14-19, Resources for the Future.
    22. Ekaterina Rhodes & Mark Jaccard, 2013. "A Tale of Two Climate Policies: Political Economy of British Columbia's Carbon Tax and Clean Electricity Standard," Canadian Public Policy, University of Toronto Press, vol. 39(s2), pages 37-52, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Weidong Zhang & Fuqiang Wang, 2022. "Information Sharing in Competing Supply Chains with Carbon Emissions Reduction Incentives," Sustainability, MDPI, vol. 14(20), pages 1-25, October.
    2. Zhengge Tu & Botao Liu & Dian Jin & Wei Wei & Jiayang Kong, 2022. "The Effect of Carbon Emission Taxes on Environmental and Economic Systems," IJERPH, MDPI, vol. 19(6), pages 1-16, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brehm, Paul, 2019. "Natural gas prices, electric generation investment, and greenhouse gas emissions," Resource and Energy Economics, Elsevier, vol. 58(C).
    2. Doyle, Matthew & Fell, Harrison, 2018. "Fuel prices, restructuring, and natural gas plant operations," Resource and Energy Economics, Elsevier, vol. 52(C), pages 153-172.
    3. Harrison Fell & Daniel T. Kaffine, 2014. "A one-two punch: Joint effects of natural gas abundance and renewables on coal-fired power plants," Working Papers 2014-10, Colorado School of Mines, Division of Economics and Business.
    4. Christopher R. Knittel & Konstantinos Metaxoglou & Anson Soderbery & André Trindade, 2022. "Exporting global warming? Coal trade and the shale gas boom," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(3), pages 1294-1333, August.
    5. Julien Xavier Daubanes & Fanny Henriet & Katheline Schubert, 2021. "Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(3), pages 543-575.
    6. Linn, Joshua & Muehlenbachs, Lucija, 2018. "The heterogeneous impacts of low natural gas prices on consumers and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 1-28.
    7. Gugler, Klaus & Haxhimusa, Adhurim & Liebensteiner, Mario, 2023. "Carbon pricing and emissions: Causal effects of Britain's carbon tax," Energy Economics, Elsevier, vol. 121(C).
    8. Nathaly M Rivera & Cristobal Ruiz Tagle, Elisheba Spiller, 2021. "The Health Benefits of Solar Power Generation: Evidence from Chile," Working Papers, Department of Economics 2021_04, University of São Paulo (FEA-USP).
    9. Jan Abrell & Mirjam Kosch, 2022. "The Impact of Carbon Prices on Renewable Energy Support," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(3), pages 531-563.
    10. Joseph A. Cullen & Erin T. Mansur, 2017. "Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach Using the Shale Revolution," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 106-133, August.
    11. Harrison Fell & Daniel T. Kaffine, 2018. "The Fall of Coal: Joint Impacts of Fuel Prices and Renewables on Generation and Emissions," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 90-116, May.
    12. Christopher R. Knittel & Konstantinos Metaxoglou & Andre Trindade, 2015. "Natural Gas Prices and Coal Displacement: Evidence from Electricity Markets," NBER Working Papers 21627, National Bureau of Economic Research, Inc.
    13. LaPlue, Lawrence D., 2022. "Environmental consequences of natural gas wellhead pricing deregulation," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    14. Julien Xavier Daubanes & Fanny Henriet & Katheline Schubert, 2017. "More Gas, Less Coal, and Less CO2? Unilateral CO2 Reduction Policy with More than One Carbon Energy Source," IFRO Working Paper 2017/09, University of Copenhagen, Department of Food and Resource Economics.
    15. Duque, Valentina & Gilraine, Michael, 2022. "Coal use, air pollution, and student performance," Journal of Public Economics, Elsevier, vol. 213(C).
    16. Sen, Suphi & Vollebergh, Herman, 2018. "The effectiveness of taxing the carbon content of energy consumption," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 74-99.
    17. Abrell, Jan & Kosch, Mirjam & Rausch, Sebastian, 2022. "How effective is carbon pricing?—A machine learning approach to policy evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    18. Brehm, Paul A. & Zhang, Yiyuan, 2021. "The efficiency and environmental impacts of market organization: Evidence from the Texas electricity market," Energy Economics, Elsevier, vol. 101(C).
    19. Gugler, Klaus & Haxhimusa, Adhurim & Liebensteiner, Mario, 2021. "Effectiveness of climate policies: Carbon pricing vs. subsidizing renewables," Journal of Environmental Economics and Management, Elsevier, vol. 106(C).
    20. Liu, Weifeng & McKibbin, Warwick J. & Morris, Adele C. & Wilcoxen, Peter J., 2020. "Global economic and environmental outcomes of the Paris Agreement," Energy Economics, Elsevier, vol. 90(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:158:y:2021:i:c:s0301421521003967. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.