Economists have tended to view emissions pricing (e.g., cap and trade or a carbon tax) as the most cost-effective approach to reducing greenhouse gas emissions. This paper offers a different view. Employing analytical and numerically solved general equilibrium models, the paper indicates plausible conditions under which a more conventional form of regulation—namely, the use of a clean energy standard (CES)—is more cost-effective. The models reveal that in a realistic economy with prior taxes on factors of production, the CES distorts factor markets less because it is a smaller implicit tax on factors. This advantage more than offsets the disadvantages of the CES when relatively minor reductions in emissions are called for. Numerical simulations indicate that the cost-effectiveness of the CES is sensitive to what is deemed “clean” electricity. To achieve maximal cost-effectiveness, the CES must offer significant credit to electricity generated from natural gas.
Media Highlight — Sep 19, 2021
This Powerful Democrat Linked to Fossil Fuels Will Craft the US Climate Plan
This front-page story for the New York Times features commentary by RFF President and CEO Richard Newell.
Common Resources — Sep 16, 2021
Under Construction: The Build Back Better Act
RFF experts assess early committee drafts of the Build Back Better Act, a far-reaching bill designed around the Senate’s unique reconciliation process that addresses clean energy and infrastructure spending.
Press Release — Sep 16, 2021
A Clean Electricity Performance Program and Tax Credits Could Drive Emissions Reductions—But Alone Are Not Enough to Meet US Climate Goals
New analysis from a team at Resources for the Future finds that a carbon price alongside a clean electricity performance program and clean energy tax credits could help the United States halve emissions–but without a carbon price or other substantial climate policies, reductions fall short.