Dynamically Estimating the Distributional Impacts of U.S. Climate Policy with NEMS: A Case Study of the Climate Protection Act of 2013

Abstract

We present a new method that enables users of the federal government’s flagship energy policy model (NEMS) to dynamically estimate the direct cost impacts of climate policy across U.S. household incomes and census regions. Our approach combines NEMS output with detailed household expenditure data from the Consumer Expenditure Survey, improving on static methods that assess policy impacts by assuming household energy demand remains unchanged under emissions pricing scenarios. To illustrate our method, we evaluate a recent carbon fee-and-dividend proposal introduced in the U.S. Senate, the Climate Protection Act of 2013 (S. 332). Our analysis indicates this bill, if enacted, would have cut CO2 emissions from energy by 17% below 2005 levels by 2020 at a gross cost of less than 0.5% of GDP, while simultaneously reducing direct energy expenditures for typical households making less than $120,000 per year and average households in all regions of the United States.

Keywords: carbon tax, climate change, climate policy, nems, economic models