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Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies

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  • Stephen P. Holland
  • Jonathan E. Hughes
  • Christopher R. Knittel
  • Nathan C. Parker

Abstract

Instead of efficiently pricing greenhouse gases, policy makers have favored measures that implicitly or explicitly subsidize low carbon fuels. We simulate a transportation-sector cap & trade program (CAT) and three policies currently in use: ethanol subsidies, a renewable fuel standard (RFS), and a low carbon fuel standard (LCFS). Our simulations confirm that the alternatives to CAT are quite costly—2.5 to 4 times more expensive. We provide evidence that the persistence of these alternatives in spite of their higher costs lies in the political economy of carbon policy. The alternatives to CAT exhibit a feature that make them amenable to adoption|a right skewed distribution of gains and losses where many counties have small losses, but a smaller share of counties gain considerably—as much as $6,800 per capita, per year. We correlate our estimates of gains from CAT and the RFS with Congressional voting on the Waxman-Markey cap & trade bill, H.R. 2454. Because Waxman-Markey (WM) would weaken the RFS, House members likely viewed the two policies as competitors. Conditional on a district's CAT gains, increases in a district's RFS gains are associated with decreases in the likelihood of voting for WM. Furthermore, we show that campaign contributions are correlated with a district's gains under each policy and that these contributions are correlated with a Member's vote on WM.

Suggested Citation

  • Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel & Nathan C. Parker, 2011. "Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies," Working Papers 1116, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  • Handle: RePEc:mee:wpaper:1116
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    Cited by:

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    2. Christopher R. Knittel & Ryan Sandle, 2011. "Cleaning the Bathwater with the Baby: The Health Co-Benefits of Carbon Pricing in Transportation," Working Papers 1115, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    3. Lade, Gabriel E. & Lin, C.-Y. Cynthia & Smith, Aaron, 2015. "Ex Post Costs and Renewable Identification Number (RIN) Prices under the Renewable Fuel Standard," Discussion Papers dp-15-22, Resources For the Future.
    4. Huse, Cristian, 2014. "Fast and Furious (and Dirty): How Asymmetric Regulation May Hinder Environmental Policy," MPRA Paper 48909, University Library of Munich, Germany.
    5. Drabik, Dusan, 2011. "The Theory of Biofuel Policy and Food Grain Prices," Working Papers 126615, Cornell University, Department of Applied Economics and Management.
    6. Goulder, Lawrence H. & Long, Xianling & Lu, Jieyi & Morgenstern, Richard D., 2022. "China's unconventional nationwide CO2 emissions trading system: Cost-effectiveness and distributional impacts," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    7. Lade, Gabriel & Lin, C.-Y. Cynthia & Smith, Aaron, 2014. "Policy Uncertainty under Market-Based Regulations: Evidence from the Renewable Fuel Standard," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170673, Agricultural and Applied Economics Association.
    8. Joseph S. Shapiro, 2016. "Trade Costs, CO2, and the Environment," American Economic Journal: Economic Policy, American Economic Association, vol. 8(4), pages 220-254, November.
    9. Yu, Zhongjue & Geng, Yong & Calzadilla, Alvaro & Bleischwitz, Raimund, 2022. "China's unconventional carbon emissions trading market: The impact of a rate-based cap in the power generation sector," Energy, Elsevier, vol. 255(C).
    10. Gabriel E Lade & C -Y Cynthia Lin Lawell & Aaron Smith, 2018. "Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(3), pages 707-731.
    11. de Gorter, Harry & Drabik, Dusan, 2015. "The Distinct Economic Effects of the Ethanol Blend Wall, RIN Prices and Ethanol Price Premium due to the RFS," Working Papers 250020, Cornell University, Department of Applied Economics and Management.
    12. GianCarlo Moschini & Harvey Lapan & Hyunseok Kim, 2017. "The Renewable Fuel Standard in Competitive Equilibrium: Market and Welfare Effects," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(5), pages 1117-1142.
    13. Huseynov, Samir & Palma, Marco A., 2018. "Does California’s LCFS Reduce CO2 Emissions?," 2018 Annual Meeting, August 5-7, Washington, D.C. 274200, Agricultural and Applied Economics Association.
    14. Jussila Hammes , Johanna, 2014. "A biofuel mandate and a low carbon fuel standard with ‘double counting’," Working papers in Transport Economics 2014:19, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    15. Mulholland, Eamonn & Teter, Jacob & Cazzola, Pierpaolo & McDonald, Zane & Ó Gallachóir, Brian P., 2018. "The long haul towards decarbonising road freight – A global assessment to 2050," Applied Energy, Elsevier, vol. 216(C), pages 678-693.
    16. Christopher R. Knittel, 2012. "Reducing Petroleum Consumption from Transportation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 93-118, Winter.
    17. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel & Nathan C. Parker, 2013. "Unintended Consequences of Transportation Carbon Policies: Land-Use, Emissions, and Innovation," NBER Working Papers 19636, National Bureau of Economic Research, Inc.
    18. Parker, Nathan & Williams, Robert & Dominguez-Faus, Rosa & Scheitrum, Daniel, 2017. "Renewable natural gas in California: An assessment of the technical and economic potential," Energy Policy, Elsevier, vol. 111(C), pages 235-245.
    19. Barla, Philippe & Proost, Stef, 2012. "Energy efficiency policy in a non-cooperative world," Energy Economics, Elsevier, vol. 34(6), pages 2209-2215.
    20. Derek Lemoine, 2017. "Escape from Third-Best: Rating Emissions for Intensity Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 789-821, August.
    21. Gabriel E Lade & C-Y Cynthia Lin Lawell & Aaron Smith, 2018. "Designing Climate Policy: Lessons from the Renewable Fuel Standard and the Blend Wall," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(2), pages 585-599.
    22. Benjamin Dachis, 2018. "Speed Bump Ahead: Ottawa Should Drive Slowly on Clean Fuel Standards," e-briefs 279, C.D. Howe Institute.
    23. Zhang, Duan & Chen, Yihsu & Tanaka, Makoto, 2018. "On the effectiveness of tradable performance-based standards," Energy Economics, Elsevier, vol. 74(C), pages 456-469.
    24. Madhu Khanna & Xiaoguang Chen & Weiwei Wang & Anthony Oliver, 2022. "Repeal of the Clean Power Plan: Social Cost and Distributional Implications," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 33-51, January.
    25. Kenneth Gillingham & James H. Stock, 2018. "The Cost of Reducing Greenhouse Gas Emissions," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 53-72, Fall.

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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