Output and Attribute-Based Carbon Regulation Under Uncertainty

50 Pages Posted: 20 Aug 2019

See all articles by Ryan Kellogg

Ryan Kellogg

University of Chicago - Harris School of Public Policy

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Date Written: August 6, 2019

Abstract

Output-based carbon regulations — such as fuel economy standards and the rate-based standards in the Clean Power Plan — create well-known incentives to inefficiently increase output. Similar distortions are created by attribute-based regulations. This paper demonstrates that, despite these distortions, output and attribute-based standards can always yield greater expected welfare than “flat” emission standards given uncertainty in demand for output (or attributes), assuming locally constant marginal damages. For fuel economy standards, the welfare-maximizing amount of attribute or mileage-basing is likely small relative to current policy. For the electricity sector, however, an intensity standard may yield greater expected welfare than a flat standard.

Suggested Citation

Kellogg, Ryan, Output and Attribute-Based Carbon Regulation Under Uncertainty (August 6, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-107, Available at SSRN: https://ssrn.com/abstract=3439423 or http://dx.doi.org/10.2139/ssrn.3439423

Ryan Kellogg (Contact Author)

University of Chicago - Harris School of Public Policy ( email )

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