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Modeling Economy-wide vs Sectoral Climate Policies Using Combined Aggregate-Sectoral Models


  • William Pizer
  • Dallas Burtraw
  • Winston Harrington
  • Richard Newell
  • James Sanchirico


Economic analyses of climate change policies frequently focus on reductions of energy-related carbon dioxide emissions via market-based, economy-wide policies. The current course of environment and energy policy debate in the United States, however, suggests an alternative outcome: sectorbased and/or inefficiently designed 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 emission reductions. We find that excluding a limited number of sectors from an economy-wide policy does not significantly raise costs. Focusing policy solely on the electricity and transportation sectors doubles costs, however, and using non-market policies can raise cost by a factor of ten. These results are driven in part by, and are sensitive to, our modeling of pre-existing tax distortions.

Suggested Citation

  • William Pizer & Dallas Burtraw & Winston Harrington & Richard Newell & James Sanchirico, 2006. "Modeling Economy-wide vs Sectoral Climate Policies Using Combined Aggregate-Sectoral Models," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 135-168.
  • Handle: RePEc:aen:journl:2006v27-03-a08

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    References listed on IDEAS

    1. Jean Charles Hourcade & Philippe Ambrosi & St├ęphane Hallegatte & Franck Lecocq & Patrice Dumas & Minh Ha-Duong, 2003. "Optimal control models and elicitation of attitudes towards climate damages," Post-Print halshs-00000966, HAL.
    2. Dyson, Freeman J., 1977. "Can we control the carbon dioxide in the atmosphere?," Energy, Elsevier, vol. 2(3), pages 287-291.
    3. RICHARD M. Adams & DARIUS M. Adams & JOHN M. Callaway & CHING-CHENG Chang & BRUCE A. Mccarl, 1993. "Sequestering Carbon On Agricultural Land: Social Cost And Impacts On Timber Markets," Contemporary Economic Policy, Western Economic Association International, vol. 11(1), pages 76-87, January.
    4. Vincent Gitz & Philippe Ciais, 2003. "Amplifying effects of land-use change on future atmospheric CO2 levels," Post-Print halshs-00009826, HAL.
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    Cited by:

    1. Banzhaf, H. Spencer & Chupp, B. Andrew, 2012. "Fiscal federalism and interjurisdictional externalities: New results and an application to US Air pollution," Journal of Public Economics, Elsevier, vol. 96(5), pages 449-464.
    2. Kailin Kroetz & James N. Sanchirico & Daniel K. Lew, 2015. "Efficiency Costs of Social Objectives in Tradable Permit Programs," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(3), pages 339-366.
    3. Kiuila, O. & Rutherford, T.F., 2013. "The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling," Ecological Economics, Elsevier, vol. 87(C), pages 62-71.
    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.

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    JEL classification:

    • F0 - International Economics - - General


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