Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures

47 Pages Posted: 7 Jun 2010 Last revised: 29 Oct 2013

See all articles by Sebastian Rausch

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Gilbert E. Metcalf

Tufts University - Department of Economics; National Bureau of Economic Research (NBER)

John M. Reilly

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Sergey Paltsev

Massachusetts Institute of Technology (MIT)

Date Written: June 2010

Abstract

We analyze the distributional and efficiency impacts of different allowance allocation schemes for a national cap and trade system using the USREP model, a new recursive dynamic computable general equilibrium model of the U.S. economy. We consider allocation schemes applied to a comprehensive national cap and trade system that limits cumulative greenhouse gas emissions over the control period to 203 billion metric tons. The policy target approximates national goals identified in pending legislation. We find that the allocation schemes in all proposals are progressive over the lower half of the income distribution and proportional in the upper half of the income distribution. We also find that carbon pricing by itself (ignoring the return of carbon revenues through allowance allocations) is proportional to modestly progressive. This striking result follows from the dominance of the sources over uses side impacts of the policy and stands in sharp contrast to previous work that has focused only on the uses side. Lower income households derive a large fraction of income from government transfers and, reflecting the reality that these are generally indexed to inflation, we hold the transfers constant in real terms. As a result this source of income is unaffected by carbon pricing, while wage and capital income is affected.

Suggested Citation

Rausch, Sebastian and Metcalf, Gilbert E. and Reilly, John M. and Paltsev, Sergey, Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures (June 2010). NBER Working Paper No. w16053. Available at SSRN: https://ssrn.com/abstract=1620770

Sebastian Rausch (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Ave, Bldg E40-474
Cambridge, MA 02139
United States

Gilbert E. Metcalf

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-3685 (Phone)
617-627-3917 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John M. Reilly

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

E19-429
77 Massachusetts Ave
Cambridge, MA 02139
United States
617-253-8040 (Phone)

Sergey Paltsev

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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