Federal Coal Program Reform, the Clean Power Plan, and the Interaction of Upstream and Downstream Climate Policies

Todd Gerarden, W. Spencer Reeder, James H. Stock

NBER Working Paper No. 22214
Issued in April 2016
NBER Program(s):Environment and Energy Economics

Coal mined on federally managed lands accounts for approximately 40% of U.S. coal consumption and 13% of total U.S. energy-related CO2 emissions. The U.S. Department of the Interior is undertaking a programmatic review of federal coal leasing, including the climate effects of burning federal coal. This paper studies the interaction between a specific upstream policy, incorporating a carbon adder into federal coal royalties, and downstream emissions regulation under the Clean Power Plan (CPP). After providing some comparative statics, we present quantitative results from a detailed dynamic model of the power sector, the Integrated Planning Model (IPM). The IPM analysis indicates that, in the absence of the CPP, a royalty adder equal to the social cost of carbon could reduce emissions by roughly 3/4 of the emissions reduction that the CPP is projected to achieve. If instead the CPP is binding, the royalty adder would: reduce the price of tradeable emissions allowances, produce some additional emissions reductions by reducing leakage, and reduce wholesale power prices under a mass-based CPP but increase them under a rate-based CPP. A federal royalty adder increases mining of non-federal coal, but this substitution is limited by a shift to electricity generation by gas and renewables.

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Document Object Identifier (DOI): 10.3386/w22214

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