How Does State-Level Carbon Pricing in the United States Affect Industrial Competitiveness?

36 Pages Posted: 13 Jan 2020 Last revised: 6 Apr 2022

See all articles by Brendan Casey

Brendan Casey

ICF, Inc.

Wayne B. Gray

Clark University - Department of Economics; National Bureau of Economic Research (NBER)

Joshua Linn

Resources for the Future

Richard D. Morgenstern

Resources for the Future

Date Written: January 2020

Abstract

Pricing carbon emissions from a jurisdiction could harm the competitiveness of local firms, causing the leakage of emissions and economic activity to other regions. Past research concentrated on national carbon prices, but the impacts of subnational carbon prices could be more severe due to the openness of regional economies. Focusing on subnational carbon pricing in the United States, we specify a flexible model to capture competition between a plant in a state with carbon pricing and plants in other states or countries. We estimate model parameters using confidential plant-level data from 1982–2011 and simulate the effects of regional carbon prices covering the Northeast and Mid-Atlantic (regions that currently cap carbon emissions from the electric sector) on manufacturing output, employment, and profits. Importantly, we model industry mix within a state or region, not simply energy price differences. A carbon price of $10 per metric ton reduces employment in the regulated region by 2.7 percent, and raises employment in nearby states by 0.8 percent; the effects on output and profits are broadly similar. National employment falls just 0.1 percent, suggesting that domestic plants in other states as opposed to foreign facilities are the principal winners from state or regional carbon pricing.

Suggested Citation

Casey, Brendan and Gray, Wayne B. and Linn, Joshua and Morgenstern, Richard D., How Does State-Level Carbon Pricing in the United States Affect Industrial Competitiveness? (January 2020). NBER Working Paper No. w26629, Available at SSRN: https://ssrn.com/abstract=3518242

Brendan Casey (Contact Author)

ICF, Inc. ( email )

9300 Lee Hwy.
Fairfax, VA 22031-1207
United States

Wayne B. Gray

Clark University - Department of Economics ( email )

950 Main Street
Worcester, MA 01610
United States
708-793-7693 (Phone)
708-793-8849 (Fax)

National Bureau of Economic Research (NBER)

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Joshua Linn

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Richard D. Morgenstern

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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