A Litmus Test of Greenhouse Gas Policy Initiatives: Electric Utilities

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The purpose of this research is to develop a comprehensive assessment of the cost and effectiveness of competing greenhouse gas policy initiatives applied to the electric power industry, an industry already targeted as a primary participant in any solution to global warming. Existing studies typically focus on the aggregate U.S or global economies and have a demand-side orientation, evaluating how consumption patterns will change in response to regulation-induced price changes. In contrast, this project implements an applied macroeconomic model of firm behavior to assess how electric utilities would respond to alternative policy initiatives. The model will be used to compare and contrast the critical properties of various policy options such as a carbon-content tax on fuels, a tax on the carbon-equivalent content of any emitted greenhouse gas, a command reduction in emissions, and a command reduction with allowed trading. The econometric model and micro data set designed for this project will generate the following information for each policy imitative: the expected reductions in carbon dioxide, nitrous oxides, overall carbon-equivalent emissions, the marginal costs of reducing these emissions, the resulting impact on prices of electricity, and the coincident effects on both sulfur dioxide and ash emissions. This information can be used to rank competing policy tools in terms of relative costs and effectiveness.