The preparation of this article was supported by the W.Alton Jones foundation. Special thanks go to Erik Haites, who contributed modeling calculations of world carbon prices for various scenarios of domestic metigation action and international flexibility rules. An extended version of this article with additional calcula-tions and details is available online at http://www.ipsep.igc.org.
CUTTING CARBON EMISSIONS AT A PROFIT (PART I): OPPORTUNITIES FOR THE UNITED STATES
Article first published online: 18 JUL 2008
Contemporary Economic Policy
Volume 20, Issue 4, pages 339–365, October 2002
How to Cite
Krause, F., DeCanio, S. J., Hoerner, J. A. and Baer, P. (2002), CUTTING CARBON EMISSIONS AT A PROFIT (PART I): OPPORTUNITIES FOR THE UNITED STATES. Contemporary Economic Policy, 20: 339–365. doi: 10.1093/cep/20.4.339
- Issue published online: 18 JUL 2008
- Article first published online: 18 JUL 2008
This article identifies and corrects shortcomings in recent modeling studies on the economics of reducing greenhouse gas emissions in the United States. The major assessments of the Kyoto Protocol—by the U.S. Energy Information Administration, the Clinton White House Council of Economic Advisers, the U.S. Department of Energy Interlaboratory Working Group, and the Stanford Energy Modeling Forum—are found to be seriously incomplete. Each study omits one or several of four major cost-reducing policy options, resulting in cost estimates that are far too pessimistic.
In the present study, these shortcomings are overcome through the integrated evaluation of all major cost-cutting policy options within a coherent least-cost framework. Three domestic policies—a national carbon cap and permit trading program, productivity-enhancing market reforms and technology programs, and recycling of permit auction revenues into economically advantageous tax cuts—are combined with international emissions allowance trading.
This analysis shows that an integrated least-cost strategy for mitigating U.S. greenhouse gas emissions would produce an annual net output gain of roughly 0.4% of GDP in 2010 and about 0.9% of GDP in 2020. On a cumulative net present value basis, the United States would gain $250 billion by 2010 and $600 billion by 2020. International flexibility mechanisms (including emissions trading) are of only secondary significance in realizing these productivity, output, and welfare gains.