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Incentives, Margins, And Cost Effectiveness In Comprehensive Climate Policy For The Power Sector

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  • ANTHONY PAUL

    (Resources for the Future, 1616 P Street, NW, Washington, DC 20036, USA)

  • KAREN PALMER

    (Resources for the Future, 1616 P Street, NW, Washington, DC 20036, USA)

  • MATTHEW WOERMAN

    (Department of Agricultural and Resource Economics, 207 Giannini Hall #3310, University of California, Berkeley CA 94720-3310, USA)

Abstract

Substantially reducing carbon dioxide (CO2) emissions from electricity production will require a transformation of the resources used to produce power. Several different incentive-based policies have been proposed ranging from setting minimums for clean generation sources to maximum emission rate standards and caps on CO2 emissions, all of which are allowed under the EPA’s Clean Power Plan. This paper analyzes the economic consequences of a suite of different flexible and comprehensive policies to reduce CO2 emissions from the power sector, including a carbon tax, a tradable emissions rate performance standard, and two versions of a clean energy standard (CES). Modeling results suggest that policies that encourage emissions reductions along multiple margins can be substantially more cost-effective than less flexible policies. The margins are intra and inter fuel, and technology substitution, electricity demand, and generator fuel efficiency. Despite cost differences, all of the policies result in substantial increases in social welfare.

Suggested Citation

  • Anthony Paul & Karen Palmer & Matthew Woerman, 2015. "Incentives, Margins, And Cost Effectiveness In Comprehensive Climate Policy For The Power Sector," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 1-27, November.
    • Handle: RePEc:wsi:ccexxx:v:06:y:2015:i:04:n:s2010007815500165
    DOI: 10.1142/S2010007815500165
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    References listed on IDEAS

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    Cited by:

    1. Dahlke, Steven, 2019. "Short run effects of carbon policy on U.S. electricity markets," SocArXiv b79yu, Center for Open Science.
    2. Palmer, Karen & Paul, Anthony & Keyes, Amelia, 2018. "Changing baselines, shifting margins: How predicted impacts of pricing carbon in the electricity sector have evolved over time," Energy Economics, Elsevier, vol. 73(C), pages 371-379.
    3. Woo, C.K. & Chen, Y. & Olson, A. & Moore, J. & Schlag, N. & Ong, A. & Ho, T., 2017. "Electricity price behavior and carbon trading: New evidence from California," Applied Energy, Elsevier, vol. 204(C), pages 531-543.
    4. Woo, C.K. & Chen, Y. & Zarnikau, J. & Olson, A. & Moore, J. & Ho, T., 2018. "Carbon trading’s impact on California’s real-time electricity market prices," Energy, Elsevier, vol. 159(C), pages 579-587.
    5. John E. T. Bistline & James Merrick & Victor Niemeyer, 2020. "Estimating Power Sector Leakage Risks and Provincial Impacts of Canadian Carbon Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(1), pages 91-118, May.
    6. Steve Dahlke, 2019. "Short Run Effects of Carbon Policy on U.S. Electricity Markets," Energies, MDPI, vol. 12(11), pages 1-21, June.

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