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Fundamental U.S. Tax Reform and Energy Markets

Dale W. Jorgenson and Peter J. Wilcoxen

Year: 1997
Volume: Volume18
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No3-1
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Abstract:
This paper presents a new intertemporal general equilibrium model of the U. S. economy incorporating a detailed representation of U.S. tax structure. We employ the model to analyze the impact of fundamental tax reform on U.S. energy markets. More rapid economic growth would dominate energy conservation, leading to greater energy consumption and higher carbon emissions.



Greenhouse Gas Reduction Policy in the United States: Identifying Winners and Losers in an Expanded Permit Trading System

Adam Rose and Gbadebo Oladosu

Year: 2002
Volume: Volume23
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No1-1
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Abstract:
We present an analysis of the economic impacts of marketable permits for greenhouse gas reduction across industries and income groups in the United States. A computable general equilibrium model is used to simulate permit markets under various assumptions about permit allocations, industry coverage, revenue recycling, sequestration, and the inclusion of multiple greenhouse gases. Our results indicate that a permit price of as much as $128 per ton carbon would be needed to comply with the full U.S. Kyoto commitment, and that this would lead to a slightly more than I percent reduction in GDP in the year 2010. Expansion of trading to include carbon sequestration and methane mitigation can significantly lower these impacts. However, all policy alternatives simulated are somewhat regressive in terms of income distribution, though to significantly different degrees depending on the policy design.



Climate Politics from Kyoto to Bonn: From Little to Nothing?

Christoph Bohringer

Year: 2002
Volume: Volume23
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No2-2
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Abstract:
We investigate how the U.S. withdrawal from the Kyoto Protocol and the provisions of the Bonn climate Policy conference on sink credits and emissions trading will change the economic and environmental impacts of the Protocol in its original form. Based on simulations with a large-scale computable general equilibrium model, we find that the U.S. withdrawal and amendments of Bonn reduce the Kyoto Protocol's impact to business-as-usual without binding emission constraints. U.S. compliance under the new Bonn provisions, on the other hand, would accommodate a substantial cut in global emissions at relatively small compliance costs for OECD countries.



Investigating Technology Options for Climate Policies: Differentiated Roles in ADAGE

Martin T. Ross, Patrick T. Sullivan, Allen A. Fawcett, and Brooks M. Depro

Year: 2014
Volume: Volume 35
Number: Special Issue
DOI: 10.5547/01956574.35.SI1.7
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Abstract:
This paper examines a range of technological and regulatory approaches to reducing greenhouse gas (GHG) emissions. Availability of new technologies will control how the economy and energy infrastructure respond to any future climate policies. How such policies interact with other types of environmental regulations will also influence the best options for meeting emissions goals. To investigate these effects, the ADAGE model is used to examine policy impacts for several climate and technology scenarios, focusing on key factors such as emissions, technology deployment, energy prices and macroeconomic indicators. In general, the simulations indicate that reductions in GHG emissions can be accomplished with limited economic adjustments, although the impacts depend on both the regulatory approaches used and the future availability of new low-carbon technologies. Keywords: Climate change, Computable general equilibrium, Electricity, Capand-trade, Renewable energy standards, Clean energy standards, Greenhouse gas emissions



Markets versus Regulation: The Efficiency and Distributional Impacts of U.S. Climate Policy Proposals

Sebastian Rausch and Valerie J. Karplus

Year: 2014
Volume: Volume 35
Number: Special Issue
DOI: 10.5547/01956574.35.SI1.11
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Abstract:
Regulatory measures have proven the favored approach to climate change mitigation in the U.S., while market-based policies have gained little traction. Using a model that resolves the U.S. economy by region, income category, and sector-specific technology deployment opportunities, this paper studies the magnitude and distribution of economic impacts under regulatory versus market-based approaches. We quantify heterogeneity in the national response to regulatory policies, including a fuel economy standard and a clean or renewable electricity standard, and compare these to a cap-and-trade system targeting carbon dioxide or all greenhouse gases. We find that the regulatory policies substantially exceed the cost of a cap-and-trade system at the national level. We further show that the regulatory policies yield large cost disparities across regions and income groups, which are exaggerated by the difficulty of implementing revenue recycling provisions under regulatory policy designs. Keywords: Energy modeling, Climate policy, Regulatory policies, Electricity, Transportation, General Equilibrium Modeling



Leakage from sub-national climate policy: The case of California’s cap–and–trade program

Justin Caron, Sebastian Rausch, and Niven Winchester

Year: 2015
Volume: Volume 36
Number: Number 2
DOI: 10.5547/01956574.36.2.8
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Abstract:
With federal policies to curb carbon emissions stagnating in the U.S., California is taking action alone. Sub-national policies can lead to high rates of emissions leakage to other regions as state-level economies are closely connected, including integration of electricity markets. Using a calibrated general equilibrium model, we estimate that California's cap-and-trade program without restrictions on imported electricity increases out-of-state emissions by 45% of the domestic reduction. When imported electricity is included in the cap and "resource shuffling" is banned, as set out in California's legislation, emissions reductions in electricity exporting states partially offset leakage elsewhere and overall leakage is 9%.



Diffusion of Climate Technologies in the Presence of Commitment Problems

Taran Faehn and Elisabeth T. Isaksen

Year: 2016
Volume: Volume 37
Number: Number 2
DOI: 10.5547/01956574.37.2.tfae
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Abstract:
Publicly announced greenhouse gas (GHG) mitigation targets and emissions pricing strategies by individual governments may suffer from inherent commitment problems. When emission prices are perceived as short-lived, socially cost-effective upfront investment in climate technologies may be hampered. This paper compares the social abatement cost of a uniform GHG pricing system with two policy options for overcoming such regulatory uncertainty: One combines the emissions pricing with a state guarantee scheme whereby the regulatory risk is borne by the government and one combines the system with subsidies for upfront climate technology investments. A technology-rich computable general equilibrium model is applied that accounts for abatement both within and beyond existing technologies. Our findings suggest a tripling of abatement costs if domestic climate policies fail to stimulate investment in new technological solutions. Since the cost of funding investment subsidies is found to be small, the subsidy scheme performs almost as well as the guarantee scheme.



Comparing Renewable Energy Policies in EU-15, U.S. and China: A Bayesian DSGE Model

Amedeo Argentiero, Tarek Atalla, Simona Bigerna, Silvia Micheli, and Paolo Polinori

Year: 2017
Volume: Volume 38
Number: KAPSARC Special Issue
DOI: 10.5547/01956574.38.SI1.aarg
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Abstract:
The promotion of renewable energy sources (RES) by governments is one way of helping countries to meet their energy needs while lowering greenhouse gas emissions. In this paper, we examine the role of energy policy in RES promotion, based on a carbon tax and RES price subsidy, at a time of technological and demand shocks in the European Union (E.U.) 15 countries, the United States (U.S.) and China, focusing on the macroeconomic implications. Using a dynamic stochastic general equilibrium model for RES and fossil fuels, our results suggest that, in the presence of a total factor productivity shock in the fossil fuel sector, such an energy policy can also be a driving force for smoothing the reduction of RES in the energy market (and vice versa). Additionally, we show that the E.U.15 grouping has a comparative advantage in terms of reaching grid parity compared with the other countries we considered which are more fossil fuel dependent.



Oil Subsidies and Renewable Energy in Saudi Arabia: A General Equilibrium Approach

Jorge Blazquez, Lester C Hunt, and Baltasar Manzano

Year: 2017
Volume: Volume 38
Number: KAPSARC Special Issue
DOI: 10.5547/01956574.38.SI1.jbla
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Abstract:
In 2016, the Kingdom of Saudi Arabia (KSA) announced its Vision 2030 strategic plan incorporating major changes to the economic structure of the country, including an intention to deploy 9.5 GW of renewable energy in an effort to reduce the penetration of oil in the electricity generation system. This paper assesses the macroeconomic impact of such changes in the KSA, coupled with reductions in implicit energy subsidies. Based on a dynamic general equilibrium model, our analysis suggests that if the KSA government were to deploy a relatively small quantity of renewable technology, consistent with the country's Vision 2030 plans, there would be a positive impact on the KSA's long run GDP and on households' welfare. However, we demonstrate that if the integration costs of renewable technology were high, then households' welfare would be maximized at around 30-40% renewables penetration. In addition, we show that a policy favoring renewable energy would increase the dependence of the KSA on oil, given that a larger share of GDP would be linked to oil exports and so, potentially, to oil price shocks. Finally, it is shown that exporting significantly more oil onto the international market could have a negative impact on the international oil price and thus could offset the potential gains from the renewable energy policy.



Hedging Strategies: Electricity Investment Decisions under Policy Uncertainty

Jennifer Morris, Vivek Srikrishnan, Mort Webster, and John Reilly

Year: 2018
Volume: Volume 39
Number: Number 1
DOI: 10.5547/01956574.39.1.jmor
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Abstract:
Given uncertainty in long-term carbon reduction goals, how much non-carbon generation should be developed in the near-term? This research investigates the optimal balance between the risk of overinvesting in non-carbon sources that are ultimately not needed and the risk of underinvesting in non-carbon sources and subsequently needing to reduce carbon emissions dramatically. We employ a novel framework that incorporates a computable general equilibrium (CGE) model of the U.S. into a two-stage stochastic approximate dynamic program (ADP) focused on decisions in the electric power sector. We solve the model using an ADP algorithm that is computationally tractable while exploring the decisions and sampling the uncertain carbon limits from continuous distributions. The results of the model demonstrate that an optimal hedge is in the direction of more non-carbon investment in the near-term, in the range of 20-30% of new generation. We also demonstrate that the optimal share of non-carbon generation is increasing in the variance of the uncertainty about the long-term carbon targets, and that with greater uncertainty in the future policy regime, a balanced portfolio of non-carbon, natural gas, and coal generation is desirable.




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