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Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies

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  • Stephen P. Holland
  • Jonathan E. Hughes
  • Christopher R. Knittel
  • Nathan C. Parker

Abstract

Instead of efficiently pricing greenhouse gases, policy makers have favored measures that implicitly or explicitly subsidize low carbon fuels. We simulate a transportation-sector cap & trade program (CAT) and three policies currently in use: ethanol subsidies, a renewable fuel standard (RFS), and a low carbon fuel standard (LCFS). Our simulations confirm that the alternatives to CAT are quite costly—2.5 to 4 times more expensive. We provide evidence that the persistence of these alternatives in spite of their higher costs lies in the political economy of carbon policy. The alternatives to CAT exhibit a feature that make them amenable to adoption|a right skewed distribution of gains and losses where many counties have small losses, but a smaller share of counties gain considerably—as much as $6,800 per capita, per year. We correlate our estimates of gains from CAT and the RFS with Congressional voting on the Waxman-Markey cap & trade bill, H.R. 2454. Because Waxman-Markey (WM) would weaken the RFS, House members likely viewed the two policies as competitors. Conditional on a district's CAT gains, increases in a district's RFS gains are associated with decreases in the likelihood of voting for WM. Furthermore, we show that campaign contributions are correlated with a district's gains under each policy and that these contributions are correlated with a Member's vote on WM.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 1116.

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Date of creation: Aug 2011
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Handle: RePEc:mee:wpaper:1116

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  1. Anderson, Soren T., 2012. "The demand for ethanol as a gasoline substitute," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 151-168.
  2. Tol, Richard S. J., 2008. "The Social Cost of Carbon: Trends, Outliers and Catastrophes," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(25), pages 1-22.
  3. Stephen P. Holland & Christopher R. Knittel & Jonathan E. Hughes, 2007. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," NBER Working Papers 13266, National Bureau of Economic Research, Inc.
  4. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers 12881, Iowa State University, Department of Economics.
  5. Alberto Salvo & Cristian Huse, 2011. "Is Arbitrage Tying the Price of Ethanol to that of Gasoline? Evidence from the Uptake of Flexible-Fuel Technology," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 119-148.
  6. Anderson, Soren T. & Kellogg, Ryan & Sallee, James M., 2013. "What do consumers believe about future gasoline prices?," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 383-403.
  7. Michael J. Roberts & Wolfram Schlenker, 2013. "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate," American Economic Review, American Economic Association, vol. 103(6), pages 2265-95, October.
  8. Michael I. Cragg & Matthew E. Kahn, 2009. "Carbon Geography: The Political Economy of Congressional Support for Legislation Intended to Mitigate Greenhouse Gas Production," NBER Working Papers 14963, National Bureau of Economic Research, Inc.
  9. Wright, Gavin, 1974. "The Political Economy of New Deal Spending: An Econometric Analysis," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 30-38, February.
  10. Seltzer, Andrew J, 1995. "The Political Economy of the Fair Labor Standards Act of 1938," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1302-42, December.
  11. Stephen P. Holland, 2009. "Taxes and Trading versus Intensity Standards: Second-Best Environmental Policies with Incomplete Regulation (Leakage) or Market Power," NBER Working Papers 15262, National Bureau of Economic Research, Inc.
  12. Gardner Bruce, 2007. "Fuel Ethanol Subsidies and Farm Price Support," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(2), pages 1-22, December.
  13. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
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Cited by:
  1. Barla, Philippe & Proost, Stef, 2012. "Energy efficiency policy in a non-cooperative world," Energy Economics, Elsevier, vol. 34(6), pages 2209-2215.
  2. Lemoine, Derek, 2013. "Escape from Third-Best: Rating Emissions for Intensity Standards," 2014 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA 161656, Agricultural and Applied Economics Association.
  3. Christopher R. Knittel, 2012. "Reducing Petroleum Consumption from Transportation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 93-118, Winter.
  4. Drabik, Dusan, 2011. "The Theory of Biofuel Policy and Food Grain Prices," Working Papers 126615, Cornell University, Department of Applied Economics and Management.
  5. Christopher R. Knittel & Ryan Sandler, 2011. "Cleaning the Bathwater with the Baby: The Health Co-Benefits of Carbon Pricing in Transportation," NBER Working Papers 17390, National Bureau of Economic Research, Inc.

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