Assessment of U.S. Cap-and-Trade Proposals
AbstractThe MIT Emissions Prediction and Policy Analysis model is applied to an assessment of a set of cap-and-trade proposals being considered by the U.S. Congress in spring 2007. The bills specify emissions reductions to be achieved through 2050 for the standard six-gas basket of greenhouse gases. They fall into two groups: one specifies emissions reductions of 50% to 80% below 1990 levels by 2050; the other establishes a tightening target for emissions intensity and stipulates a time path for a "safety valve" limit on the emission price that approximately stabilizes U.S. emissions at the 2008 level. A set of three synthetic emissions paths are defined that span the range of stringency of these proposals, and these "core" cases are analyzed for their consequences in terms of emissions prices, effects on energy markets, welfare cost, the potential revenue generation if allowances are auctioned and the gains if permit revenue were used to reduce capital or labor taxes. Initial period prices for the first group of proposals, in carbon dioxide equivalents, are estimated between $30 and $50 per ton CO2-e depending on where each falls in the 50% to 80% range, with these prices rising by a factor of four by 2050. Welfare costs are less than 0.5% at the start, rising in the most stringent case to near 2% in 2050. If allowances were auctioned these proposals could produce revenue between $100 billion and $500 billion per year depending on the case. Emissions prices for the second group, which result from the specified safety-valve path, rise from $7 to $40 over the study period, with welfare effects rising from near zero to approximately a 0.5% loss in 2050. Revenue in these proposals depends on how many allowances are freely distributed. To analyze these proposals assumptions must be made about mitigation effort abroad, and simulations are provided to illuminate terms-of-trade effects that influence the emissions prices and welfare effects, and even the environmental effectiveness, of U.S. actions. Sensitivity tests also are provided of several of the design features imposed in the "core" scenarios including the role of banking, the specification of less than complete coverage of economic sectors, and the development of international permit trading. Also, the effects of alternative assumptions about nuclear power development are explored. Of particular importance in these simulations is the role of biofuels, and analysis is provided of the implications of these proposals for land use and agriculture. Finally, the U.S. proposals, and the assumptions about effort elsewhere, are extended to 2100 to allow exploration of the potential role of these bills in the longer-term challenge of reducing climate change risk. Simulations using the MIT Integrated System Model show that the 50% to 80% targets are consistent with global goals of atmospheric stabilization at 450 to 550 ppmv CO2 but only if other nations, including the developing countries, follow.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0705.
Date of creation: Apr 2007
Date of revision:
Contact details of provider:
Postal: 77 Massachusetts Ave. (Building E40-279), Cambridge, MA 02139-4307
Phone: (617) 253-3551
Fax: (617) 253-9845
Web page: http://tisiphone.mit.edu/RePEc
More information through EDIRC
Other versions of this item:
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
- 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
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sharmila Ganguly).
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.