| Summary: | The MIT Emissions Prediction and Policy Analysis model is applied to an assessment of a set of cap-and-trade proposals being considered by the U.S. Congress in spring 2007. The bills specify emissions reductions to be achieved through 2050 for the standard six-gas basket of greenhouse gases. They fall into two groups: one specifies emissions reductions of 50% to 80% below 1990 levels by 2050; the other establishes a tightening target for emissions intensity and stipulates a time path for a "safety valve" limit on the emission price that approximately stabilizes U.S. emissions at the 2008 level. A set of three synthetic emissions paths are defined that span the range of stringency of these proposals, and these "core" cases are analyzed for their consequences in terms of emissions prices, effects on energy markets, welfare cost, the potential revenue generation if allowances are auctioned and the gains if permit revenue were used to reduce capital or labor taxes. Initial period prices for the first group of proposals, in carbon dioxide equivalents, are estimated between $30 and $50 per ton CO2-e depending on where each falls in the 50% to 80% range, with these prices rising by a factor of four by 2050. Welfare costs are less than 0.5% at the start, rising in the most stringent case to near 2% in 2050. If allowances were auctioned these proposals could produce revenue between $100 billion and $500 billion per year depending on the case. Emissions prices for the second group, which result from the specified safety-valve path, rise from $7 to $40 over the study period, with welfare effects rising from near zero to approximately a 0.5% loss in 2050. Revenue in these proposals depends on how many allowances are freely distributed.
|
|---|