Policy Monitor--Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists

Until recently, most attention to U.S. climate policy has focused on legislative efforts to introduce a price on carbon through cap and trade. In the absence of such legislation, the Clean Air Act is a potentially effective vehicle for achieving reductions in greenhouse gas (GHG) emissions. Decisions regarding existing stationary sources will have the greatest effect on emissions reductions. Although the magnitude of reductions is uncertain, it is plausible that a 10 percent reduction in GHG emissions from 2005 levels could be achieved at moderate costs by 2020. This is comparable to domestic emissions reductions that would have been achieved under the Waxman--Markey legislation. These measures do not include the switching of fuels, which could yield further reductions. The ultimate cost of regulation under the Act hinges on the stringency of standards and the flexibility allowed. A broad-based tradable performance standard is legally plausible and would provide incentives comparable to the proposed legislation, at least in the near term. Copyright 2011, Oxford University Press.