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No state left behind: A better approach to U.S. climate policy

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Written by Marion Davis

Tuesday, 17 August 2010 22:41

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SEI researchers analyse differences between U.S. states and how they affect the relative impact of possible climate policies, then model a simple approach to reduce emissions with minimal effects on incomes.


Efforts to pass climate legislation failed in the U.S. Congress this year due, to a great extent, to economic concerns. A new study by SEI-U.S. Centre economists, however, 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.

Gaining more than paying
The study, entitled Emission Reduction, Interstate Equity, and the Price of Carbon, was released by Economics for Equity & Environment (the E3 Network) and SEI.

It 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.

No need to fear higher carbon 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 carbon prices that are much higher than any proposed so far in the United States.

- This study shows that we don't need to be afraid of a high carbon price, says 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, she says.

Accompanying policy white paper
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-U.S.'s Climate Economics Group, produced a white paper offering key questions to gauge the effectiveness of proposed climate policies — from whether emissions targets are low enough, to how much would be invested in energy efficiency, and how the money would be targeted.

Download the study here (pdf, external website)

Download the white paper here (pdf, external website)
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