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Modeling Economywide versus Sectoral Climate Policies Using Combined Aggregate-Sectoral Models

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  • Pizer, William A.
  • Burtraw, Dallas
  • Harrington, Winston
  • Newell, Richard G.
  • Sanchirico, James N.

Abstract

Economic analyses of climate change policies frequently focus on reductions of energy-related carbon dioxide emissions via market-based, economywide policies. The current course of environment and energy policy debate in the United States, however, suggests an alternative outcome: inefficiently designed and/or sector-based 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 emissions reductions. We find that excluding a limited number of sectors from an economywide policy does not significantly raise costs. Focusing policy solely on the electricity and transportation sectors doubles costs, however, and using nonmarket policies can raise costs by a factor of 10. These results are driven in part by, and are sensitive to, our modeling of preexisting tax distortions.

Suggested Citation

  • Pizer, William A. & Burtraw, Dallas & Harrington, Winston & Newell, Richard G. & Sanchirico, James N., 2005. "Modeling Economywide versus Sectoral Climate Policies Using Combined Aggregate-Sectoral Models," Discussion Papers 10502, Resources for the Future.
  • Handle: RePEc:ags:rffdps:10502
    DOI: 10.22004/ag.econ.10502
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    File URL: https://ageconsearch.umn.edu/record/10502/files/dp050008.pdf
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    Cited by:

    1. 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.
    2. Xavier Labandeira, Pedro Linares and Miguel Rodriguez, 2009. "An Integrated Approach to Simulate the impacts of Carbon Emissions Trading Schemes," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    3. Barker, Terry & Ekins, Paul & Foxon, Tim, 2007. "Macroeconomic effects of efficiency policies for energy-intensive industries: The case of the UK Climate Change Agreements, 2000-2010," Energy Economics, Elsevier, vol. 29(4), pages 760-778, July.
    4. Gilbert E. Metcalf, 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.
    5. Palmer, Karen & Burtraw, Dallas & Paul, Anthony, 2009. "Allowance Allocation in a CO2 Emissions Cap-and-Trade Program for the Electricity Sector in California," Discussion Papers dp-09-41, Resources For the Future.
    6. Burtraw, Dallas, 2007. "State Efforts to Cap the Commons: Regulating Sources or Consumers?," Discussion Papers dp-07-49, Resources For the Future.

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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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