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Emission Reduction, Interstate Equity, and the Price of Carbon

Economics for Equity and the Environment (E3 Network) report

Author(s): Stanton, E.A. ; Ackerman, F.
Year: 2010

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Emission Reduction, Interstate Equity, and the Price of Carbon
Individual parts:
Executive summary
Report only (no appendices)
Appendix A
Appendix B
Appendix C

No State Left Behind: A Better Approach to Climate Policy (related white paper)
Efforts to pass climate legislation failed in the U.S. Congress this year due, to a great extent, to economic concerns. However, this study shows that a simple approach that puts a price on carbon, then returns most of the revenue to households, could effectively reduce greenhouse gas emissions without hurting most Americans' incomes.

The study, released by Economics for Equity and the Environment (the E3 Network), the nation's largest network of economists focused on environmental issues, and SEI, modeled the potential impact of climate policies on households in each state, based on their current incomes, energy consumption, and the source of their electricity – since coal power, now very cheap, would be most affected by a price on carbon emissions.

It found that despite dramatic differences in states' current emissions, and in the additional costs households would face from higher utility rates, gasoline prices, and consumer-goods prices, if 85 percent of the carbon-policy revenue is returned to households on a per capita basis, the median household in every state would come out ahead. Overall, four-fifths of U.S. households, including all those with lower-than-average incomes, would gain more from climate rebates than they would pay in higher prices.

Just as important, the study found, as long as enough of the revenue is returned to households, the actual price put on carbon (via permits, a fee, or a tax) doesn't change the outcome: The average family of four in every state still comes out ahead even at $75 per ton of CO2, roughly twice what Congress has so far considered, but the minimum price that the authors estimate would be needed to meet widely accepted emission reduction targets for 2020.

"This study shows that we don't need to be afraid of a high carbon price," said Elizabeth A. Stanton, Ph.D., a senior economist at SEI and lead author of the report. "The higher the price, the better incentive it gives to reduce our emissions quickly. Our concern, instead, should focus on how the climate bills before Congress would rebate revenues to households."

Stanton noted that none of the bills considered by Congress would have returned such a sizable share of carbon revenue to the people – nor would they have set a high enough carbon price, according to the study, to reduce greenhouse gas emissions as the bills aimed to do, 17 to 20 percent by 2020 (from 2005 levels), 42 percent by 2030, and 83 percent by 2050.

Along with the report, Stanton and co-author Frank Ackerman, Ph.D., director of SEI's Climate Economics Group, produced a white paper, No State Left Behind: A Better Approach to Climate Policy, offering key questions to gauge the effectiveness of proposed climate policies. Click here to learn more.

Liz Stanton gave a presentation Oct. 6, 2010, at Tufts University describing the main findings of the study and the seven policy questions identified in the white paper. Click here to download a copy of her PowerPoint presentation (as a PDF).


In the Media:


"The cost of reducing greenhouse gases," report and interview with Frank Ackerman by Molly Peterson, of 89.3 KPCC Southern California Public Radio (with streaming audio), Aug. 23, 2010.
"Economists' report argues for big rebates as way to quell carbon-price impact worries," by Geoffrey Craig, Electric Utility Week, Aug. 23, 2010.
"Can a stiff carbon price and generous rebate policy change energy use?" by Saqib Rahim, ClimateWire, Aug. 19, 2010.

Frank Ackerman and Liz Stanton co-authored two opinion articles based on the report and the white paper. Below are links to selected publications in which they appeared:
"A climate policy for people," The Providence Journal (RI), Sept. 9, 2010.
"Building climate policy right," Worcester Telegram & Gazette (MA), Sept. 3, 2010.
"How to build a better climate policy," TripleCrisis blog, Aug. 23, 2010.
"How to build a better climate policy," The Oregonian (abridged) and The Stump blog, OregonLive.com, Aug. 22, 2010.
"A climate policy for people and the environment," Grist, Aug. 16, 2010.


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