NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

General Equilibrium Impacts of a Federal Clean Energy Standard

Lawrence H. Goulder, Marc A. C. Hafstead, Roberton C. Williams III

NBER Working Paper No. 19847
Issued in January 2014
NBER Program(s):   EEE   PE

Economists have tended to view cap and trade (or, more generally, emissions pricing) as more cost-effective than a clean energy standard (CES) for the purpose of reducing greenhouse gas emissions associated with electricity generation. This stems in part from the finding that, in terms of cost-effectiveness, a CES relies too much on emissions abatement through the channel of fuel-switching and too little on the channel of reduced electricity demand.

Recent research reveals, however, that the CES has an advantage over cap and trade in a different dimension. In a realistic economy with prior taxes on factors of production, the adverse “tax-interaction effect” is smaller under the CES than under the equivalent cap-and-trade program. This raises the possibility that the CES might not suffer an overall disadvantage relative to cap and trade on cost-effectiveness grounds.

This paper employs analytical and numerical general equilibrium models to assess the relative cost-effectiveness of the CES and an electricity-sector cap-and-trade program. These models reveal that a well-designed CES can be more cost-effective than cap and trade when relatively minor reductions in emissions are called for. Numerical simulations indicate that the cost-effectiveness of the CES is sensitive to what is deemed “clean” electricity. To achieve maximal cost-effectiveness, the CES must offer significant credit to electricity generated from natural gas.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19847

Users who downloaded this paper also downloaded these:
Barrage, Chyn, and Hastings w19838 Advertising, Reputation, and Environmental Stewardship: Evidence from the BP Oil Spill
Metcalf w19729 The Economics of Energy Security
Jayaraman, Ray, and de Vericourt w19849 Productivity Response to a Contract Change
Isen, Rossin-Slater, and Walker w19858 Every Breath You Take – Every Dollar You’ll Make: The Long-Term Consequences of the Clean Air Act of 1970
Armour, Burkhauser, and Larrimore w19846 Using the Pareto Distribution to Improve Estimates of Topcoded Earnings
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us