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Impact of Carbon Price Policies on U.S. Industry

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  • Ho, Mun S.
  • Morgenstern, Richard

    () (Resources for the Future)

  • Shih, Jhih-Shyang

    () (Resources for the Future)

Abstract

This paper informs the discussion of carbon price policies by examining the potential for adverse impacts on domestic industries, with a focus on detailed sector-level analysis. The assumed policy scenario involves a unilateral economy-wide $10/ton CO2 charge without accompanying border tax adjustments or other complementary policies. Four modeling approaches are developed as a proxy for the different time horizons over which firms can pass through added costs, change input mix, adopt new technologies, and reallocate capital. Overall, we find that a readily identifiable set of industries experience particularly adverse impacts as measured by reduced output and that the relative burdens on different industries are remarkably consistent across the four time horizons. Output rebounds considerably over longer time horizons, and the adverse impacts on profits diminish even more rapidly in most cases. Over the short term employment losses mirror output declines, while gains in other industries fully offset the losses over the longer horizons. At the same time, leakage abroad is considerable in some sectors, particularly when reductions in exports are considered.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-08-37.

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Date of creation: 15 Dec 2008
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Handle: RePEc:rff:dpaper:dp-08-37

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Keywords: carbon price; competitiveness; input-output analysis;

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References

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  1. Arik Levinson & M. Scott Taylor, 2004. "Unmasking the Pollution Haven Effect," NBER Working Papers 10629, National Bureau of Economic Research, Inc.
  2. Carolyn Fischer & Richard D. Morgenstern, 2006. "Carbon Abatement Costs: Why the Wide Range of Estimates?," The Energy Journal, International Association for Energy Economics, vol. 27(2), pages 73-86.
  3. Joseph E. Aldy & William A. Pizer, 2011. "The Competitiveness Impacts of Climate Change Mitigation Policies," NBER Working Papers 17705, National Bureau of Economic Research, Inc.
  4. Michael Greenstone, 1998. "The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufacturers," Working Papers 787, Princeton University, Department of Economics, Industrial Relations Section..
  5. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March.
  6. Morgenstern, Richard D. & Ho, Mun & Shih, J.-S.Jhih-Shyang & Zhang, Xuehua, 2004. "The near-term impacts of carbon mitigation policies on manufacturing industries," Energy Policy, Elsevier, vol. 32(16), pages 1825-1841, November.
  7. Carolyn Fischer & Alan K. Fox, 2007. "Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions," Land Economics, University of Wisconsin Press, vol. 83(4), pages 575-599.
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Cited by:
  1. Bartleet, Matthew & Iyer, Kris & Lawrence, Gillian & Numan-Parsons, Elisabeth & Stroombergen, Adolf, 2009. "Impact of emissions pricing on New Zealand manufacturing: A short-run analysis," Occasional Papers 10/2, Ministry of Economic Development, New Zealand.
  2. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2011. "Embodied Carbon Tariffs," NBER Working Papers 17376, National Bureau of Economic Research, Inc.
  3. Monjon, Stéphanie & Quirion, Philippe, 2011. "Addressing leakage in the EU ETS: Border adjustment or output-based allocation?," Ecological Economics, Elsevier, vol. 70(11), pages 1957-1971, September.
  4. Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W.H. Parry & William A. Pizer, 2009. "Designing Climate Mitigation Policy," NBER Working Papers 15022, National Bureau of Economic Research, Inc.
  5. de Melo, Jaime & Mathys, Nicole Andréa, 2010. "Trade and Climate Change: The Challenges Ahead," CEPR Discussion Papers 8032, C.E.P.R. Discussion Papers.
  6. Adkins, Liwayway & Garbaccio, Richard & Ho, Mun & Moore, Eric & Morgenstern, Richard, 2010. "The Impact on U.S. Industries of Carbon Prices with Output-Based Rebates over Multiple Time Frames," Discussion Papers dp-10-47, Resources For the Future.
  7. Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," Discussion Papers dp-09-02, Resources For the Future.

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