Controlling Carbon Emissions from U.S. Power Plants: How a Tradable Performance Standard Compares to a Carbon Tax

27 Pages Posted: 12 Aug 2015 Last revised: 13 Aug 2015

See all articles by Warwick J. McKibbin

Warwick J. McKibbin

Australian National University

Adele C. Morris

The Brookings Institution

Peter Wilcoxen

Syracuse University

Date Written: August 1, 2015

Abstract

Different pollution control policies, even if they achieve the same emissions goal, could have importantly different effects on the composition of the energy sector and economic outcomes. In this paper, we use the G-Cubed model of the global economy to compare two basic policy approaches for controlling carbon emissions from power plants: a tradable performance standard and a carbon tax. We choose these two approaches because they resemble two key options facing policymakers: continue implementing a performance standard approach under the Clean Air Act or adopt an excise tax on the carbon content of fossil fuels instead. Our goal is to highlight the important high-level differences in these basic approaches, abstracting from the details of specific policy proposals. We explore a wide variety of the illustrative policies’ economic outcomes including: changes in capital stocks and electricity production across eight types of generators, changes in end-user electricity prices, changes in gross domestic product (GDP), overall welfare impacts on the household sector and, finally, one outcome represented in the G-Cubed model and few others: short to medium-run changes in aggregate employment.

Suggested Citation

McKibbin, Warwick J. and Morris, Adele C. and Wilcoxen, Peter, Controlling Carbon Emissions from U.S. Power Plants: How a Tradable Performance Standard Compares to a Carbon Tax (August 1, 2015). CAMA Working Paper No. 30/2015, Available at SSRN: https://ssrn.com/abstract=2642062 or http://dx.doi.org/10.2139/ssrn.2642062

Warwick J. McKibbin (Contact Author)

Australian National University ( email )

Crawfrod School of Public Policy
Canberra, ACT 2600
Australia
02-61250301 (Phone)
02-62735575 (Fax)

HOME PAGE: http://www.sensiblepolicy.com

Adele C. Morris

The Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/morrisa.aspx

Peter Wilcoxen

Syracuse University ( email )

426 Eggers Hall
Syracuse, NY 13244-2130
United States

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