Potential State‐Level Carbon Revenue Under the Clean Power Plan

18 Pages Posted: 27 Nov 2017

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Daniel H. Karney

University of Illinois at Urbana-Champaign

Date Written: January 2018

Abstract

In 2015, the U.S. Environmental Protection Agency issued the Clean Power Plan under which each state can set a mass‐based target to meet its assigned electric power sector carbon dioxide emission reductions. If it proceeds, states can design policies to meet those requirements and also raise revenue via a carbon tax or cap‐and‐trade program with auctioned permits. We calculate each state's potential revenue and demonstrate its significance. In 13 states, carbon revenue could replace all of corporate tax revenue. In addition, we collect budget projections from six key states to determine if and how carbon revenue can substantially reduce deficits. While such revenue is not free money, we discuss its advantages over use of distortionary taxation. Finally, we consider distributional aspects and potential external fiscal effects on federal revenue.

JEL Classification: H2, H3, H7, Q5

Suggested Citation

Fullerton, Don and Karney, Daniel H., Potential State‐Level Carbon Revenue Under the Clean Power Plan (January 2018). Contemporary Economic Policy, Vol. 36, Issue 1, pp. 149-166, 2018. Available at SSRN: https://ssrn.com/abstract=3076625 or http://dx.doi.org/10.1111/coep.12221

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Daniel H. Karney

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

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