General Equilibrium Impacts of a Federal Clean Energy Standard

Resources for the Future Discussion Paper No. 14-02

54 Pages Posted: 3 May 2014

See all articles by Lawrence H. Goulder

Lawrence H. Goulder

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Resources for the Future

Marc A. C. Hafstead

Stanford University

Roberton C. Williams

University of Maryland - Department of Agricultural & Resource Economics; National Bureau of Economic Research (NBER); Resources for the Future

Multiple version iconThere are 2 versions of this paper

Date Written: February 10, 2014

Abstract

Economists have tended to view emissions pricing (e.g., cap and trade or a carbon tax) as the most cost-effective approach to reducing greenhouse gas emissions. This paper offers a different view. Employing analytical and numerically solved general equilibrium models, the paper indicates plausible conditions under which a more conventional form of regulation — namely, the use of a clean energy standard (CES) — is more cost-effective. The models reveal that in a realistic economy with prior taxes on factors of production, the CES distorts factor markets less because it is a smaller implicit tax on factors. This advantage more than offsets the disadvantages of the CES 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.

Keywords: clean energy standard, intensity standard, emissions pricing, climate

JEL Classification: Q58, Q54, H23

Suggested Citation

Goulder, Lawrence H. and Hafstead, Marc A. C. and Williams, Roberton C., General Equilibrium Impacts of a Federal Clean Energy Standard (February 10, 2014). Resources for the Future Discussion Paper No. 14-02, Available at SSRN: https://ssrn.com/abstract=2432176 or http://dx.doi.org/10.2139/ssrn.2432176

Lawrence H. Goulder

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-723-3706 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

Marc A. C. Hafstead (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Roberton C. Williams

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/cgi-bin/familyinfo.pl?a=a&user=roberton_williams

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
38
Abstract Views
437
PlumX Metrics