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

79 Pages Posted: 21 Sep 2011 Last revised: 23 Sep 2011

See all articles by Stephen P. Holland

Stephen P. Holland

University of California, Berkeley - Energy Institute; University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics

Jonathan E. Hughes

University of Colorado at Boulder - Department of Economics

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Nathan C. Parker

University of California, Davis

Date Written: September 2011

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

Holland, Stephen P. and Hughes, Jonathan E. and Knittel, Christopher R. and Parker, Nathan C., Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies (September 2011). NBER Working Paper No. w17386. Available at SSRN: https://ssrn.com/abstract=1931156

Stephen P. Holland (Contact Author)

University of California, Berkeley - Energy Institute ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics ( email )

401 Bryan Building
Greensboro, NC 27402-6179
United States

Jonathan E. Hughes

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nathan C. Parker

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

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