Modeling the U.S. Climate Agenda: Macro-Climate Trade-Offs and Considerations

37 Pages Posted: 4 Feb 2022

See all articles by Philip Barrett

Philip Barrett

International Monetary Fund (IMF)

Katharina Bergant

International Monetary Fund, Research Department

Jean Chateau

International Monetary Fund (IMF)

Rui C. Mano

International Monetary Fund

Date Written: December 1, 2021

Abstract

The run up to the 26th Climate Change Conference has brought tackling climate change to the fore of global policy making. In this context, the U.S. administration has recently unveiled new climate targets. This paper elaborates on the administration’s plans and uses two models developed at the IMF to illustrate key macro-climate trade-offs. First, a model with endogenous fuel-specific technological change shows that subsidies cannot substitute for explicit carbon pricing and that even a moderate carbon tax can greatly economize on the overall fiscal cost of the package. Second, a rich sectoral model shows that there are only very marginal economic costs from front-loading the decarbonization of the power sector but there are large accompanying environmental benefits. Regulations can be effective in the power sector because they provide an appropriate shadow cost to carbon. However, a carbon tax would still be more efficient and easier to administer. Finally, as the economy transitions away from fossil-fueled power generation, there would be a significant reallocation of labor across sectors and locations that would need to be handled carefully to limit the social costs of the transition.

Keywords: Climate Change, subsidies, carbon tax, power sector.

JEL Classification: Q51, Q28

Suggested Citation

Barrett, Philip and Bergant, Katharina and Chateau, Jean and Mano, Rui C., Modeling the U.S. Climate Agenda: Macro-Climate Trade-Offs and Considerations (December 1, 2021). IMF Working Paper No. 2021/290, Available at SSRN: https://ssrn.com/abstract=4026523

Philip Barrett (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Katharina Bergant

International Monetary Fund, Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Jean Chateau

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rui C. Mano

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://sites.google.com/site/ruimano/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
43
Abstract Views
309
PlumX Metrics