IDEAS home Printed from https://ideas.repec.org/a/aea/aejpol/v8y2016i2p186-218.html
   My bibliography  Save this article

General Equilibrium Impacts of a Federal Clean Energy Standard

Author

Listed:
  • Lawrence H. Goulder
  • Marc A. C. Hafstead
  • Roberton C. Williams III

Abstract

Economists have tended to view emissions pricing (e.g., cap and trade or a carbon tax) as the most cost-effective approach to reducing greenhouse gas emissions. This paper offers a different view. Employing analytical and numerically solved general equilibrium models, it provides plausible conditions under which a more conventional form of regulation—namely, the use of a clean energy standard (CES)—is more cost-effective. The models reveal that the CES distorts factor markets less because it is a smaller implicit tax on factors of production. This advantage more than offsets the disadvantages of the CES when minor emissions reductions are involved. (JEL H23, Q42, Q48, Q54, Q58)

Suggested Citation

  • Lawrence H. Goulder & Marc A. C. Hafstead & Roberton C. Williams III, 2016. "General Equilibrium Impacts of a Federal Clean Energy Standard," American Economic Journal: Economic Policy, American Economic Association, vol. 8(2), pages 186-218, May.
    • Handle: RePEc:aea:aejpol:v:8:y:2016:i:2:p:186-218
    Note: DOI: 10.1257/pol.20140011
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/articles?id=10.1257/pol.20140011
    Download Restriction: no
    File URL: https://www.aeaweb.org/aej/pol/data/0802/2014-0011_data.zip
    Download Restriction: no
    File URL: https://www.aeaweb.org/aej/pol/app/0802/2014-0011_app.pdf
    Download Restriction: no
    File URL: https://www.aeaweb.org/aej/pol/ds/0802/2014-0011_ds.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Goulder, Lawrence H. & Hafstead, Marc A.C. & Dworsky, Michael, 2010. "Impacts of alternative emissions allowance allocation methods under a federal cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 161-181, November.
    2. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
    3. Don Fullerton & Garth Heutel, 2010. "The General Equilibrium Incidence of Environmental Mandates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 64-89, August.
    4. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-1185, July.
    5. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    6. Don Fullerton & Gilbert E. Metcalf, 2002. "Environmental Controls, Scarcity Rents, and Pre-existing Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 26, pages 504-522, Edward Elgar Publishing.
    7. Holland, Stephen P., 2012. "Emissions taxes versus intensity standards: Second-best environmental policies with incomplete regulation," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 375-387.
    8. Lawrence H. Goulder & Ian W.H. Parry & Roberton C. Williams III & Dallas Burtraw, 2002. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 27, pages 523-554, Edward Elgar Publishing.
    9. Burtraw, Dallas & Fraas, Arthur G. & Richardson, Nathan, 2012. "Tradable Standards for Clean Air Act Carbon Policy," RFF Working Paper Series dp-12-05, Resources for the Future.
    10. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2009. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 106-146, February.
    11. Ian W.H. Parry & Wallace E. Oates & Ian W.H. Parry & Wallace E. Oates, 2004. "Policy Analysis in the Presence of Distorting Taxes," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 4, pages 67-77, Edward Elgar Publishing.
    12. Derek Lemoine, 2017. "Escape from Third-Best: Rating Emissions for Intensity Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 789-821, August.
    13. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 157-183, August.
    Full references (including those not matched with items on IDEAS)

    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. Lawrence H. Goulder, 1998. "Environmental Policy Making in a Second-Best Setting," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 279-328, November.
    2. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90, National Bureau of Economic Research, Inc.
    3. Harrison Fell & Daniel Kaffine & Daniel Steinberg, 2017. "Energy Efficiency and Emissions Intensity Standards," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(S1), pages 201-226.
    4. Bovenberg, A. Lans & Goulder, Lawrence H. & Jacobsen, Mark R., 2008. "Costs of alternative environmental policy instruments in the presence of industry compensation requirements," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1236-1253, June.
    5. Goulder, Lawrence H. & Hafstead, Marc A.C. & Dworsky, Michael, 2010. "Impacts of alternative emissions allowance allocation methods under a federal cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 161-181, November.
    6. David Klenert & Gregor Schwerhoff & Ottmar Edenhofer & Linus Mattauch, 2018. "Environmental Taxation, Inequality and Engel’s Law: The Double Dividend of Redistribution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(3), pages 605-624, November.
    7. A. Lans Bovenberg & Lawrence H. Goulder & Mark R. Jacobsen, 2007. "Industry Compensation and the Costs of Alternative Environmental Policy Instruments," NBER Working Papers 13331, National Bureau of Economic Research, Inc.
    8. Mazumder, Diya B., 2014. "Biofuel subsidies versus the gas tax: The carrot or the stick?," Energy Economics, Elsevier, vol. 44(C), pages 361-374.
    9. Böhringer, Christoph & Garcia-Muros, Xaquin & Gonzalez-Eguino, Mikel & Rey, Luis, 2017. "US climate policy: A critical assessment of intensity standards," Energy Economics, Elsevier, vol. 68(S1), pages 125-135.
    10. Bruno Lanz and Sebastian Rausch, 2016. "Emissions Trading in the Presence of Price-Regulated Polluting Firms: How Costly Are Free Allowances?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    11. Ian W.H. Parry, 2005. "Fiscal Interactions and the Costs of Controlling Pollution from Electricity," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 849-869, Winter.
    12. Dissou, Yazid, 2005. "Cost-effectiveness of the performance standard system to reduce CO2 emissions in Canada: a general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 27(3), pages 187-207, October.
    13. Goulder, Lawrence H. & Hafstead, Marc A.C. & Kim, GyuRim & Long, Xianling, 2019. "Impacts of a carbon tax across US household income groups: What are the equity-efficiency trade-offs?," Journal of Public Economics, Elsevier, vol. 175(C), pages 44-64.
    14. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
    15. A. Lans Bovenberg & Lawrence H. Goulder & Derek J. Gurney, 2005. "Efficiency Costs of Meeting Industry-Distributional Constraints Under Environmental Permits and Taxes," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 950-970, Winter.
    16. Derek Lemoine, 2017. "Escape from Third-Best: Rating Emissions for Intensity Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 789-821, August.
    17. Bushnell, James & Chen, Yihsu, 2012. "Allocation and leakage in regional cap-and-trade markets for CO2," Resource and Energy Economics, Elsevier, vol. 34(4), pages 647-668.
    18. Jacobs, Bas & de Mooij, Ruud A., 2015. "Pigou meets Mirrlees: On the irrelevance of tax distortions for the second-best Pigouvian tax," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 90-108.
    19. Lawrence H. Goulder & Ian W.H. Parry & Roberton C. Williams III & Dallas Burtraw, 2002. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 27, pages 523-554, Edward Elgar Publishing.
    20. Fischer, Carolyn & Fox, Alan, 2004. "Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade," RFF Working Paper Series dp-04-37, Resources for the Future.

    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • 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 and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    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:aea:aejpol:v:8:y:2016:i:2:p:186-218. 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: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    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.