Ex-ante Evaluation of a Policy's Effect on Productivity: The Substitution and Scale Effects of Carbon Taxation on Power Plant Productivity

36 Pages Posted: 22 Aug 2018 Last revised: 7 Jun 2019

Date Written: June 4, 2019

Abstract

I develop a general framework for ex-ante analysis of a policy's effect on productivity. I use it to study the effect of carbon taxation on power plant productivity in the United States. Carbon taxes increase the price of burning fossil fuels, potentially encouraging power plants to be more fuel efficient. Whether carbon taxes do so is ambiguous because carbon taxes also increase the overall cost of electricity production, encouraging power plants to reduce output which reduces the plant's incentive to take costly actions to be more productive. I find carbon taxation reduces fuel productivity at commonly-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

Suggested Citation

Flynn, Zach, Ex-ante Evaluation of a Policy's Effect on Productivity: The Substitution and Scale Effects of Carbon Taxation on Power Plant Productivity (June 4, 2019). Available at SSRN: https://ssrn.com/abstract=3223189 or http://dx.doi.org/10.2139/ssrn.3223189

Zach Flynn (Contact Author)

Afiniti ( email )

1701 Pennsylvania Ave
Washington, DC 20006
United States

HOME PAGE: http://zflynn.com

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