Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures
We analyze the distributional and efficiency impacts of different allowance allocation schemes motivated by recently proposed U.S. climate legislation for a national cap and trade system using a new dynamic computable general equilibrium model of the U.S. economy. The USREP model tracks nine differe...
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| Format: | Article |
| Language: | en_US |
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Berkeley Electronic Press
2011
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| Online Access: | http://hdl.handle.net/1721.1/60912 https://orcid.org/0000-0001-5595-0968 https://orcid.org/0000-0003-3287-0732 |
| _version_ | 1811085302274457600 |
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| author | Paltsev, Sergey Rausch, Sebastian Reilly, John M Metcalf, Gilbert E |
| author2 | MIT Energy Initiative |
| author_facet | MIT Energy Initiative Paltsev, Sergey Rausch, Sebastian Reilly, John M Metcalf, Gilbert E |
| author_sort | Paltsev, Sergey |
| collection | MIT |
| description | We analyze the distributional and efficiency impacts of different allowance allocation schemes motivated by recently proposed U.S. climate legislation for a national cap and trade system using a new dynamic computable general equilibrium model of the U.S. economy. The USREP model tracks nine different income groups and twelve different geographic regions within the U.S. We find that the allocation schemes in all proposals are progressive over the lower half of the income distribution and proportional in the upper half of the income distribution. Scenarios based on the Cantwell-Collins allocation proposal are less progressive in early years and have lower welfare costs due to smaller redistribution to low income households and, consequently, lower income-induced increases in energy demand and less savings and investment. Scenarios based on the three other allocation schemes tend to overcompensate some adversely affected income groups and regions in early years, but this dissipates over time as the allowance allocation effect becomes weaker. Finally, we find that carbon pricing by itself (ignoring the return of carbon revenues through allowance allocations) is proportional to modestly progressive. This striking result follows from the dominance of the sources over uses side impacts of the policy and stands in sharp contrast to previous work that has focused only on the uses side. The main reason is that lower income households derive a large fraction of income from government transfers, and we hold the transfers constant in real terms, reflecting the fact that transfers are generally indexed to inflation. As a result, this source of income is unaffected by carbon pricing while wage and capital income is affected. |
| first_indexed | 2024-09-23T13:06:48Z |
| format | Article |
| id | mit-1721.1/60912 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T13:06:48Z |
| publishDate | 2011 |
| publisher | Berkeley Electronic Press |
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| spelling | mit-1721.1/609122022-09-28T12:04:19Z Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures Paltsev, Sergey Rausch, Sebastian Reilly, John M Metcalf, Gilbert E MIT Energy Initiative Sloan School of Management Reilly, John M. Paltsev, Sergey Rausch, Sebastian Reilly, John M Metcalf, Gilbert E We analyze the distributional and efficiency impacts of different allowance allocation schemes motivated by recently proposed U.S. climate legislation for a national cap and trade system using a new dynamic computable general equilibrium model of the U.S. economy. The USREP model tracks nine different income groups and twelve different geographic regions within the U.S. We find that the allocation schemes in all proposals are progressive over the lower half of the income distribution and proportional in the upper half of the income distribution. Scenarios based on the Cantwell-Collins allocation proposal are less progressive in early years and have lower welfare costs due to smaller redistribution to low income households and, consequently, lower income-induced increases in energy demand and less savings and investment. Scenarios based on the three other allocation schemes tend to overcompensate some adversely affected income groups and regions in early years, but this dissipates over time as the allowance allocation effect becomes weaker. Finally, we find that carbon pricing by itself (ignoring the return of carbon revenues through allowance allocations) is proportional to modestly progressive. This striking result follows from the dominance of the sources over uses side impacts of the policy and stands in sharp contrast to previous work that has focused only on the uses side. The main reason is that lower income households derive a large fraction of income from government transfers, and we hold the transfers constant in real terms, reflecting the fact that transfers are generally indexed to inflation. As a result, this source of income is unaffected by carbon pricing while wage and capital income is affected. 2011-02-10T21:57:58Z 2011-02-10T21:57:58Z 2010-07 2010-02 Article http://purl.org/eprint/type/JournalArticle 1935-1682 http://hdl.handle.net/1721.1/60912 Rausch, Sebastian et al. “Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures.” The B.E. Journal of Economic Analysis & Policy 10.2 (2010): n. pag. Copyright 2010 The Berkeley Electronic Press https://orcid.org/0000-0001-5595-0968 https://orcid.org/0000-0003-3287-0732 en_US http://dx.doi.org/10.2202/1935-1682.2537 B E Journal of Economic Analysis and Policy Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. application/pdf Berkeley Electronic Press BEPress |
| spellingShingle | Paltsev, Sergey Rausch, Sebastian Reilly, John M Metcalf, Gilbert E Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures |
| title | Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures |
| title_full | Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures |
| title_fullStr | Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures |
| title_full_unstemmed | Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures |
| title_short | Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures |
| title_sort | distributional implications of alternative u s greenhouse gas control measures |
| url | http://hdl.handle.net/1721.1/60912 https://orcid.org/0000-0001-5595-0968 https://orcid.org/0000-0003-3287-0732 |
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