REDUCING UNITED-STATES CARBON EMISSIONS - AN ECONOMETRIC GENERAL EQUILIBRIUM ASSESSMENT

This paper describes research we conducted as part of Energy Modeling Forum 12, a recent study of the costs of limiting carbon dioxide emissions organized by the Energy Modeling Forum at Stanford University. It discusses how our approach differed from that of other participants in EMF-12 and presents several important findings. In particular, we show that in the United States the effects of a carbon tax will be very similar to the effects of a tax placed solely on coal. Outside the coal sector, the principal effect of carbon tax will be to raise the cost of electricity and to shift base load electric generating capacity toward fuels other than coal. At the aggregate level, higher energy prices will cause gross national product to fall unless the revenue from tax is used to reduce high marginal tax rates elsewhere in the economy.