Adele C. Morris

Comparing Climate Commitments: A Model-Based Analysis of the Copenhagen Accord

The political accord struck by leaders at the United Nations negotiations in Copenhagen in December 2009 allows participants to express their greenhouse gas commitments in a variety of ways. This paper compares the environmental and economic performance of these disparate commitments using the G-Cubed model of the global economy. We focus on fossil-fuel-related CO2 and assume targets are achieved domestically. We show how different formulations make the same targets appear different in stringency and explore the Accords spillover effects across countries. We find that commitments by Japan and Europe imply high carbon prices and relatively high GDP losses. The United States and China both have moderate carbon prices and moderate GDP effects. Australia and Eastern Europe/Former Soviet Union have relatively large GDP effects despite small or zero carbon prices because their terms of trade decline. OPEC suffers a large drop in GDP from a sharp decline in world oil demand.

POLICY INSIGHTS FROM THE EMF 32 STUDY ON U.S. CARBON TAX SCENARIOS

The Stanford Energy Modeling Forum exercise 32 (EMF 32) used 11 different models to assess emissions, energy, and economic outcomes from a plausible range of economy-wide carbon price policies to reduce carbon dioxide (CO2) emissions in the United States. Here we discuss the most policy-relevant results of the study, mindful of the strengths and weaknesses of current models. Across all models, carbon prices lead to significant reductions in CO2 emissions and conventional pollutants, with the vast majority of the reductions occurring in the electricity sector. Importantly, emissions reductions do not significantly depend on the rebate or tax cut used to return revenues to the economy. Expected economic costs, as modeled by either GDP or welfare, are modest, but vary across models. These costs are offset by benefits from avoided climate damages and health benefits from reductions in conventional air pollution. Using revenues to reduce preexisting capital or labor taxes reduces costs in most models relative to lump-sum rebates, but the size of the cost reductions varies significantly. Devoting at least some revenue to household rebates can significantly reduce adverse impacts on low income households. Carbon prices at

Are New Homes Special?: Are New Homes Special

25/ton or even lower levels cause significant shifts away from coal as an energy source with responses of other energy sources highly dependent upon technology cost assumptions. Beyond 2030, we conclude that model uncertainties are too large to make quantitative results useful for near-term policy design. We close by describing recommendations for policymakers on interacting with model results in the future.

Bridging the Gap: Integrating Price Mechanisms into International Climate Negotiations

This article describes alternative ways of identifying new homes and, using a large dataset of property sales in Las Vegas, Nevada, tests for the extent to which new homes sell at a price premium relative to otherwise similar existing homes. We also investigate whether the results differ across time and location, including before and after the housing bust. Our results suggest that price premia for new homes arise primarily in circumstances in which the supply of new houses is relatively low. In some cases rising to over 20% relative to otherwise similar existing homes. When new homes are plentiful, they are not special and the premium disappears.

How Should Governments Use Revenue from Corrective Taxes

The Parties to the United Nations Framework Convention on Climate Change (UNFCCC) continue their efforts to forge a new binding international agreement by 2015. The negotiations face daunting odds, but the 2009 Copenhagen Accords shift towards heterogeneous national commitments was a positive step forward for climate policy. The prior presumption that binding commitments could only take the form of a percentage reduction relative to historical levels alienated rapidly industrializing countries and led to unproductive disputes over base years and other issues of target formulation. However, the disparate approaches now under discussion complicate comparing the likely emissions reductions and economic efforts required to achieve the commitments. This paper makes two points. First, we offer good reasons and ways to adapt international negotiations to allow for price-based commitments. The economic uncertainty surrounding target-only commitments is enormous. Combining a clear cumulative emissions target with limits on the cost associated with achieving the target would balance the environmental objective with the need to ensure that commitments remain feasible. This economic insurance could foster greater participation in the agreement and more ambitious commitments. Specifically, we suggest that in addition to their cumulative emissions targets for the 2013 to 2020 period, major economies could agree to a price collar on greenhouse gas emissions in their domestic economies. This would include starting floor and ceiling prices on a ton of CO2 and a schedule for real increases in those prices. All major parties would need to show at least a minimum level of effort regardless of whether they achieve their emissions target, and they would be allowed to exceed their target if they are unable to achieve it in spite of undertaking a high level of effort. The paper provides an example of how a price collar would work in the US context under a cap-and-trade system. Second, analyzing proposed climate commitments in terms of their implied economic stringency, as measured by the implied price on carbon necessary to achieve the targets, offers transparent and verifiable assurance of the comparability of effort across countries. It possible to calculate carbon price equivalents of climate commitments in a conceptually similar way to the tariff equivalents used in international trade negotiations. In sum, the lack of transparency in the level of effort involved in achieving particular emissions targets highlights the potential value of allowing for price-based commitments and argues for greater economic transparency in the international negotiation process.

Climate Change and Monetary Policy: Dealing with Disruption

Corrective taxes can encourage healthier, safer, and less polluting behavior. But how should governments use their revenue? Options abound to cut other taxes, boost spending, or reduce borrowing. We organize those uses into four categories: offsetting new burdens, furthering the same goal, compensating people harmed by the taxed activity, or funding unrelated priorities. We illustrate them with examples including greenhouse gas emissions, unhealthy foods, financial transactions, tobacco, gasoline, and other products. We discuss the pros and cons of competing revenue uses and describe tradeoffs across their social benefits and political appeal.

Reforming the U.S. coal leasing program

This paper explores the interaction of monetary policy and climate change as they jointly influence macroeconomic outcomes. In bringing together the literatures on climate change and monetary policy, we seek to alert policymakers in each realm to the implications of the other.

Controlling Carbon Emissions from U.S. Power Plants: How a Tradable Performance Standard Compares to a Carbon Tax

Royalty rates and auction practices do not reflect the social costs of coal About 40% of all coal mined in the United States is extracted from lands owned by the federal government, under leases managed by the U.S. Department of the Interior (DOI). Burning that coal accounts for 13% of U.S. energy-related greenhouse gas (GHG) emissions (1). With the largest and lowest-cost reserves in the United States, federal coal alone—estimated at nearly 10% of the worlds known reserves—has potential to contribute substantially to atmospheric CO2 concentrations (2). In response to calls for reform, DOI has issued a moratorium on new leases while it develops a Programmatic Environmental Impact Statement to guide the first major reform of the program since 1982. We review existing knowledge of key issues relevant to reform, highlighting the social costs of coal extraction, the extent of substitution away from federal coal induced by raising additional leasing revenue, the lack of competition in the leasing auctions, and the incentives inherent in the current leasing program structure. We then turn to critical areas of research that can be done in the near term and would contribute to more informed debate and policy development.

Distributional effects of a carbon tax in broader U.S. fiscal reform

Different pollution control policies, even if they achieve the same emissions goal, could have importantly different effects on the composition of the energy sector and economic outcomes. In this paper, we use the G-Cubed model of the global economy to compare two basic policy approaches for controlling carbon emissions from power plants: a tradable performance standard and a carbon tax. We choose these two approaches because they resemble two key options facing policymakers: continue implementing a performance standard approach under the Clean Air Act or adopt an excise tax on the carbon content of fossil fuels instead. Our goal is to highlight the important high-level differences in these basic approaches, abstracting from the details of specific policy proposals. We explore a wide variety of the illustrative policies’ economic outcomes including: changes in capital stocks and electricity production across eight types of generators, changes in end-user electricity prices, changes in gross domestic product (GDP), overall welfare impacts on the household sector and, finally, one outcome represented in the G-Cubed model and few others: short to medium-run changes in aggregate employment.