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Should energy use be lowered by using broad-based taxes or through promoting and mandating energy savings through command-and-control measures and targeted subsidies? We integrate a micro-simulation analysis, based on a representative sample of 9,734 households of the Swiss population, into a numerical general equilibrium model to examine the efficiency and equity implications of these alternative regulatory approaches. We find that at the economy-wide level taxing energy is five times more cost-effective than promoting energy savings. About 36% of households gain under tax-based regulation while virtually all households are worse off under a promotion-based policy. Tax-based regulation, however, yields a substantial dispersion in household-level impacts whereas heterogeneous household types are similarly affected under a promotion-based approach. Our analysis points to important trade-offs between efficiency and equity in environmental policy design. Keywords: Environmental policy, Instrument choice, Market-based instruments, Command-and-control, Efficiency, Equity, Heterogeneous households, Microsimulation, General equilibrium, 1. INTRODUCTION Fossil-based energy use generates environmental externalities. Should such energy use be lowered using taxes or through promoting and mandating energy savings? The choice and design of regulatory instruments [...]

We study whether to auction or to freely distribute emissions allowances when some firms participating in emissions trading are subject to price regulation. We show that free allowances allocated to price-regulated firms effectively act as a subsidy to output, distort consumer choices, and generally induce higher output and emissions by price-regulated firms. This provides a cost-effectiveness argument for an auction-based allocation of allowances (or equivalently an emissions tax). For real-world economies such as the Unites States, in which about 20 percent of total carbon dioxide emissions are generated by price-regulated electricity producers, our quantitative analysis suggests that free allowances increase economy-wide welfare costs of the policy by 40-80 percent relative to an auction. Given large disparities in regional welfare impacts, we show that the inefficiencies are mainly driven by the emissions intensity of electricity producers in regions with a high degree of price regulation. Keywords: Tradable Pollution Permits, Climate policy, Auctioning, Free Allocation, Price Regulation, Electricity Generation, 1. INTRODUCTION Emissions trading programs have become a centerpiece of environmental policy in Europe and the United States. In a competitive setting with full information, the creation of a market [...]

With federal policies to curb carbon emissions stagnating in the U.S., California is taking action alone. Sub-national policies can lead to high rates of emissions leakage to other regions as state-level economies are closely connected, including integration of electricity markets. Using a calibrated general equilibrium model, we estimate that California's cap-and-trade program without restrictions on imported electricity increases out-of-state emissions by 45% of the domestic reduction. When imported electricity is included in the cap and 'resource shuffling' is banned, as set out in California's legislation, emissions reductions in electricity exporting states partially offset leakage elsewhere and overall leakage is 9%. Keywords: Climate policy, Cap-and-trade, California, Electricity imports, Resource shuffling, Computable general equilibrium, State-level climate policy, Border effect, 1. INTRODUCTION Leakage occurs when greenhouse gas (GHG) restrictions in some regions increase emissions elsewhere. Climate policies can cause leakage via their impacts on trade, fossil fuel prices and factor [...]

Regulatory measures have proven the favored approach to climate change mitigation in the U.S., while market-based policies have gained little traction. Using a model that resolves the U.S. economy by region, income category, and sector-specific technology deployment opportunities, this paper studies the magnitude and distribution of economic impacts under regulatory versus market-based approaches. We quantify heterogeneity in the national response to regulatory policies, including a fuel economy standard and a clean or renewable electricity standard, and compare these to a cap-and-trade system targeting carbon dioxide or all greenhouse gases. We find that the regulatory policies substantially exceed the cost of a cap-and-trade system at the national level. We further show that the regulatory policies yield large cost disparities across regions and income groups, which are exaggerated by the difficulty of implementing revenue recycling provisions under regulatory policy designs. Keywords: Energy modeling, Climate policy, Regulatory policies, Electricity, Transportation, General Equilibrium Modeling, 1. INTRODUCTION In the absence of comprehensive legislation to curb greenhouse gas (GHG) emissions in the United States, policymakers have been pursuing climate change mitigation through sector or technology-specific regulatory [...]

The Energy Modeling Forum 24 study included a set of policy scenarios designed to compare economy wide market-based and sectoral regulatory approaches of potential U.S. climate policy. Models from seven teams participated in this part of the study assessing economy-wide cap-and-trade climate policy and sectoral policies in the transportation and electric sector in terms of potential greenhouse gas emissions reductions, economic cost, and energy systems implications. This paper presents an overview of the results from the U.S. policy scenarios, and provides insights into the comparison of results from the participating models. In particular, various metrics were used to compare the model results including allowance price, the efficient frontier, consumption loss, GDP loss, and equivalent variation. We find that the choice of economic metric is an important factor in the comparison of model results. Among the insights, we note that the carbon price should cautiously be considered when other non-cap sectoral policies affecting emissions are assumed in tandem. We also find that a transportation sector policy is consistently shown to be inefficient compared to an economy-wide cap-and-trade policy with a comparable level of emissions reductions. Keywords: Climate policy, Energy-economy modeling, Sectoral climate policies, Policy interaction, 1. INTRODUCTION In the absence of comprehensive legislation to curb greenhouse gas (GHG) emissions in the United States, policymakers have been pursuing climate change mitigation through sector or technology-specific regulatory [...]