The Substitution and Scale Effects of Carbon Taxation on the Productivity of Power Plants in the United States
39 Pages Posted: 22 Aug 2018
Date Written: July 31, 2018
Carbon taxes increase the price of burning fossil fuels to produce electricity, potentially encouraging power plants to be more fuel efficient. I study how carbon taxes affect power plant productivity in the United States. Theory is ambiguous because carbon taxes both increase the cost of electricity production generally, encouraging power plants to be smaller, reducing the incentive to be more productive in a broad class of economic models, and increase the price of fuel, encouraging plants to be more productive. I find carbon taxation reduces fuel productivity and quantify by how much at various proposed carbon taxes.
Keywords: carbon taxation, endogenous productivity, prospective policy evaluation, electricity generation industry, the effect of carbon taxation on power plant productivity
JEL Classification: L94, H23, D24
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