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Strategies for Mitigating Climate Change Through Energy Efficiency: the RFF Haiku Electricity Market Model

This analysis uses the RFF Haiku electricity market model to analyze several of the policies under consideration for EMF-25: an energy (electricity) tax, a carbon tax, a subsidy to energy efficiency and a combination of the last two policies. Reported results include the effects of these policies on electricity demand, electricity price, and emissions of CO2 from the electricity sector. This analysis also reports a partial equilibrium measure of the net economic benefits of each policy that accounts for the economic benefits of CO2 emissions reductions and the electricity market economic surplus costs of each of the policies. The findings suggest that policies that increase electricity prices can actually increase total economic surplus in electricity markets in some parts of the country. This result hinges on electricity market regulation and the price impact of the policy. Given the scale of the policies modeled here and for mid-range estimates of the social costs of CO2 emissions, the carbon tax policy produces the largest increase in net economic surplus.

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Energy Specializations: Energy Efficiency; Electricity – Markets and Prices ; Electricity – Policy and Regulation; Energy and the Environment – Environmental Market Design

JEL Codes:
Q55 - Environmental Economics: Technological Innovation
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-11

Published in Volume 32, Special Issue of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.