Discussion Paper

Effects of Carbon Policies and Technology Change

Abstract

We develop and estimate an index-based measure of expected consumer welfare under various carbon emissions control policies in the electricity generation sector. This approach estimates welfare effects by a somewhat less data intensive methodology than econometric approaches or more complex modeling. We include anticipated technological change in the production of renewable and nonrenewable power generation during the next two decades. We estimate welfare improvements from 2000 to 2020 as renewable energy technologies continue to be improved and gradually adopted, compared with a counterfactual scenario allowing for continual improvement of nonrenewable generation technology. We formally incorporate uncertainty. We evaluate the model under alternative carbon emissions control policies, including policies that create incentives through price mechanisms and policies that mandate the composition of the generation portfolio. We focus on three countries that differ widely in their power fuel mix: India, Germany, and the United States.