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Modeling Economy-wide vs Sectoral Climate Policies Using Combined Aggregate-Sectoral Models

William Pizer, Dallas Burtraw, Winston Harrington, Richard Newell, and James Sanchirico

Year: 2006
Volume: Volume 27
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No3-8
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Economic analyses of climate change policies frequently focus on reductions of energy-related carbon dioxide emissions via market-based, economy-wide policies. The current course of environment and energy policy debate in the United States, however, suggests an alternative outcome: sectorbased and/or inefficiently designed policies. This paper uses a collection of specialized, sector-based models in conjunction with a computable general equilibrium model of the economy to examine and compare these policies at an aggregate level. We examine the relative cost of different policies designed to achieve the same quantity of emission reductions. We find that excluding a limited number of sectors from an economy-wide policy does not significantly raise costs. Focusing policy solely on the electricity and transportation sectors doubles costs, however, and using non-market policies can raise cost by a factor of ten. These results are driven in part by, and are sensitive to, our modeling of pre-existing tax distortions.

Should Automobile Fuel Economy Standards be Tightened?

Carolyn Fischer, Winston Harrington and Ian W.H. Parry

Year: 2007
Volume: Volume 28
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No4-1
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This paper develops analytical and numerical models to explain and estimate the welfare effects of raising Corporate Average Fuel Economy (CAFE) standards for new passenger vehicles. The analysis encompasses a wide range of scenarios concerning consumers valuation of fuel economy and the full economic costs of adopting fuel-saving technologies. It also accounts for, and improves estimates of, CAFE's impact on externalities from local and global pollution, oil dependence, traffic congestion and accidents. The bottom line is that it is difficult to make an airtight case either for or against tightening CAFE on pure efficiency grounds, as the magnitude and direction of the welfare change varies across different, plausible scenarios.

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