The Impact on U.S. Industries of Carbon Prices with Output-Based Rebates over Multiple Time Frames
RFF Academic Seminar
Mun Ho, Visiting Scholar
Richard D. Morgenstern, Senior Fellow, Resources for the Future
Tuesday, November 23, 2010
12 - 1:00 p.m.
7th Floor Conference Center
1616 P St. NW
Washington, D.C. 20036
The effects of a carbon price on industry output depend on the number of countries implementing the policy as well as parallel policies to compensate losers. The effects are also likely to change over time as firms and customers gradually adjust to the new prices. Here we examine the effects of a $15/ton CO2 price, including Waxman-Markey type rebates to energy-intensive industries, on U.S. industry output and profits over four time horizons – the very short run and short run when input substitution are not possible, and the medium and long run when they are. We also consider the competitiveness and leakage effects – the changes in trade flows and changes in emissions in the rest of the world. We find that if firms cannot pass on the higher costs, the loss in profits in a number of industries will indeed be large. However, assuming a commonly used set of elasticities from GTAP, the reduction in output and profits is substantially smaller. The leakage effect, while substantial with a unilateral policy, is mitigated with joint Annex I action.
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