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Issues in Designing U.S. Climate Change Policy

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  • Joseph E. Aldy
  • William A. Pizer

Abstract

Over the coming decades, the cost of U.S. climate change policy likely will be comparable to the total cost of all existing environmental regulationÑperhaps 1-2 percent of national income. In order to avoid higher costs, policy efforts should create incentives for firms and individuals to pursue the cheapest climate change mitigation options over time, among all sectors, across national borders, and in the face of significant uncertainty. Well-designed national greenhouse gas mitigation policies can serve as the foundation for global efforts and as an example for emerging and developing countries. We present six key policy design issues that will determine the costs, cost-effectiveness, and distributional impacts of domestic climate policy: program scope, cost containment, offsets, revenues and allowance allocation, competitiveness, and R&D policy. We synthesize the literature on these design features, review the implications for the ongoing policy debate, and identify outstanding research questions that can inform policy development.

Suggested Citation

  • Joseph E. Aldy & William A. Pizer, 2009. "Issues in Designing U.S. Climate Change Policy," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 179-210.
  • Handle: RePEc:aen:journl:2009v30-03-a09
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    2. Giménez, Eduardo L. & Rodríguez, Miguel, 2010. "Reevaluating the first and the second dividends of environmental tax reforms," Energy Policy, Elsevier, vol. 38(11), pages 6654-6661, November.
    3. Copenhagen Economics, 2008. "Reduced VAT for environmentally friendly products," Taxation Studies 0025, Directorate General Taxation and Customs Union, European Commission.
    4. Arik Levinson, 2011. "Belts and Suspenders: Interactions among Climate Policy Regulations," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 127-140, National Bureau of Economic Research, Inc.
    5. Grischa Perino, 2010. "Technology Diffusion with Market Power in the Upstream Industry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(4), pages 403-428, August.
    6. Meredith Fowlie & Christopher R. Knittel & Catherine Wolfram, 2012. "Sacred Cars? Cost-Effective Regulation of Stationary and Nonstationary Pollution Sources," American Economic Journal: Economic Policy, American Economic Association, vol. 4(1), pages 98-126, February.
    7. Meredith Fowlie & Christopher R. Knittel & Catherine Wolfram, 2008. "Sacred Cars? Optimal Regulation of Stationary and Non-stationary Pollution Sources," NBER Working Papers 14504, National Bureau of Economic Research, Inc.
    8. del Río, Pablo, 2017. "Why does the combination of the European Union Emissions Trading Scheme and a renewable energy target makes economic sense?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 74(C), pages 824-834.
    9. Davidsdottir, B. & Fisher, M., 2011. "The odd couple: The relationship between state economic performance and carbon emissions economic intensity," Energy Policy, Elsevier, vol. 39(8), pages 4551-4562, August.
    10. Edmonds, James & Calvin, Katherine & Clarke, Leon & Kyle, Page & Wise, Marshall, 2012. "Energy and technology lessons since Rio," Energy Economics, Elsevier, vol. 34(S1), pages 7-14.
    11. Fowlie, Meredith & Knittel, Christopher R & Wolfram, Catherine D, 2008. "Sacred Cars? Optimal Regulation of Stationary and Non-stationary Pollution Sources," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cn02883, Department of Agricultural & Resource Economics, UC Berkeley.
    12. Burtraw, Dallas & Holt, Charles & Palmer, Karen & Shobe, William M., 2020. "Quantities with Prices: Price-Responsive Allowance Supply in Environmental Markets," RFF Working Paper Series 20-17, Resources for the Future.

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