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Modeling Economywide versus Sectoral Climate Policies Using Combined Aggregate-Sectoral Models

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  • Burtraw, Dallas

    ()
    (Resources for the Future)

  • Pizer, William

    ()
    (Resources for the Future)

  • Harrington, Winston

    ()
    (Resources for the Future)

  • Sanchirico, James

    ()
    (Resources for the Future)

  • Newell, Richard

    ()
    (Resources for the Future)

Abstract

Economic analyses of climate change policies frequently focus on reductions of energy-related carbon dioxide emissions via market-based, economywide policies. The current course of environment and energy policy debate in the United States, however, suggests an alternative outcome: inefficiently designed and/or sector-based policies. This paper uses a collection of specialized, sector-based models in conjunction with a computable general equilibrium model of the economy to examine and compare these policies at an aggregate level. We examine the relative cost of different policies designed to achieve the same quantity of emissions reductions. We find that excluding a limited number of sectors from an economywide policy does not significantly raise costs. Focusing policy solely on the electricity and transportation sectors doubles costs, however, and using nonmarket policies can raise costs by a factor of 10. These results are driven in part by, and are sensitive to, our modeling of preexisting tax distortions.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-05-08.

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Date of creation: 20 Apr 2005
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Handle: RePEc:rff:dpaper:dp-05-08

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Keywords: carbon; carbon dioxide; climate change; climate policy; general equilibrium;

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References

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  1. Victor R. Fuchs & Alan B. Krueger & James M. Poterba, 1998. "Economists' Views about Parameters, Values, and Policies: Survey Results in Labor and Public Economics," Journal of Economic Literature, American Economic Association, vol. 36(3), pages 1387-1425, September.
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  9. Goldberg, Pinelopi Koujianou, 1998. "The Effects of the Corporate Average Fuel Efficiency Standards in the US," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 1-33, March.
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  14. Burtraw, Dallas & Krupnick, Alan & Palmer, Karen & Paul, Anthony & Toman, Michael & Bloyd, Cary, 2003. "Ancillary benefits of reduced air pollution in the US from moderate greenhouse gas mitigation policies in the electricity sector," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 650-673, May.
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Cited by:
  1. Xavier Labandeira, Pedro Linares and Miguel Rodriguez, 2009. "An Integrated Approach to Simulate the impacts of Carbon Emissions Trading Schemes," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
  2. Aldy, Joseph E. & Pizer, William A., 2008. "Issues in Designing U.S. Climate Change Policy," Discussion Papers dp-08-20, Resources For the Future.
  3. Palmer, Karen & Burtraw, Dallas & Paul, Anthony, 2009. "Allowance Allocation in a CO2 Emissions Cap-and-Trade Program for the Electricity Sector in California," Discussion Papers dp-09-41, Resources For the Future.
  4. Gilbert E. Meltcalf, 2007. "Federal Tax Policy towards Energy," NBER Chapters, in: Tax Policy and the Economy, Volume 21, pages 145-184 National Bureau of Economic Research, Inc.
  5. Burtraw, Dallas, 2007. "State Efforts to Cap the Commons: Regulating Sources or Consumers?," Discussion Papers dp-07-49, Resources For the Future.
  6. Barker, Terry & Ekins, Paul & Foxon, Tim, 2007. "Macroeconomic effects of efficiency policies for energy-intensive industries: The case of the UK Climate Change Agreements, 2000-2010," Energy Economics, Elsevier, vol. 29(4), pages 760-778, July.

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