CUTTING CARBON EMISSIONS AT A PROFIT (PART II): IMPACTS ON U.S. COMPETITIVENESS AND JOBS

This article examines how an integrated least-cost implementation of the Kyoto Protocol in the United States would affect U.S. competitiveness and jobs. Drawing on previous work, the authors analyze integrated emission reduction strategies based on a $50/ton carbon tax (including border tax adjustments), a payroll tax cut, energy-productivity–oriented market reforms, and international flexibility mechanisms. This policy portfolios is compared to conventional approaches that omit market and fiscal reforms.
Input-output data are used to estimate the impact on export prices of goods and services produced in the United States. Similar data are used to translate changes in GDP and energy production into employment impacts in energy and nonenergy sectors. The costs of providing transitional assistance for workers in the coal industry are compared to the GDP benefits of a profitable Kyoto strategy.
The analysis shows that relative to purchasing international emission rights, productivity-raising domestic market, institutional, and fiscal reforms offer much broader advantages for tradE-exposed U.S. industries. Though allowance purchases alone increase export prices of U.S. manufactured goods and services, an integrated no-regrets strategy reduces export prices for the large majority of U.S. industries and limits the impact of climate protection policies on the few most energy-intensive basic materials industries to very small levels. Relative to the baseline, an integrated least-cost implementation of the Kyoto target increases economy-wide employment levels by several hundred thousand jobs in 2010.     

CONSERVED ENERGY SUPPLY CURVES FOR U.S. BUILDINGS

Comparison of nine conservation supply curves for electricity shows that fully implementing a series of energy efficiency measures will result in annual saving of 734 billion kWh (BkWh). This is 45 percent of 1989 U.S. building sector electricity use of 1627 BkWh and represents a $29 billion saving. When translated to units of conserved carbon dioxide (CC CO₂), this annual saving is 514 megatonnes, which is 10 percent of the total 1989 U.S. carbon dioxide (CO₂) emissions from all sources. Implementing additional fuel efficiency measures would result in further potential saving of 5·2 quads of fuel (natural gas and oil) per year, or another 300 megatonnes of CO₂, at a net savings of $20 billion. Fuel switching (replacing electric resistance heat with on-site natural gas combustion) would produce annual saving of another 74 megatonnes of CO₂ at a net saving of $6·8 billion. Thus, total CO₂ saving from these combined efficiency measures are 890 megatonnes at a net saving of $56 billion per year.     

ESTIMATED MACROECONOMIC EFFECTS OF THE U.S. STIMULUS BILL

This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of the U.S. stimulus bill passed in February 2009. The analysis has the advantage of taking into account many endogenous effects. Real U.S. output is estimated to be $554 billion larger when summed over the 12‐year period 2009:1–2020:4 (0.29% of the total sum of output). The average number of jobs is 509 thousand larger (0.37%). There is some redistribution of output and employment away from 2012 to 2015. At the end of 2020, the federal government debt is larger by $637 billion in real terms (the debt/GDP ratio is larger by 3.19 percentage points), which may increase the risk of negative asset‐market reactions. (JEL E17)     

OFFSETTING NEW CO2 EMISSIONS: A RATIONAL FIRST GREENHOUSE POLICY STEP

This paper describes and assesses a policy to slow the increase of carbon dioxide (CO2) emissions in the atmosphere. Policy governing new CO₂ sources would either prevent emissions, procure compensating emissions reductions, or sequester emissions in sinks. The paper uses electric power plants to demonstrate the mechanics of the policy and the control or offset choices. Offset options include scrubbing, fuel switching, investments in energy conservation and efficiency, and afforestation.
Costs per ton ofC0₂ sequestered range from $1.35 for planting shade trees to $59.41 for scrubbing. All options except scrubbing cost less than $11.00, and the median cost is around $6.00 per ton removed. Planting trees on erodible cropland in conjunction with the Conservation Reserve Program combines the goals of reduced erosion, surplus agricultural production, and greenhouse warming. This policy is a first sane step toward reducing the accumulation of greenhouse gases. Having an international framework for managing emissions is most desirable. In the interim, however, the United States can demonstrate environmental leadership, generate substantial conservation benefits, and spark ingenuity in searching for alternatives, broadening the options, and lowering the ultimate costs of reducing CO₂ emissions.     

BILATERAL TRADE RELATIONSHIP BETWEEN THE UNITED STATES AND CANADA: IMPLICATIONS OF THE FREE TRADE AGREEMENT

This study's primary objective is to evaluate empirically the economic effects of the U.S.-Canada Free Trade Agreement (FTA). The paper emphasizes bilateral trade flows of agricultural and industrial products between the United States and Canada, given that the FTA removes tariff and non-tariff barriers. It evaluates the FTA's impact on the two countries' trade with third countries. The paper specifies a traditional log-linear trade model consisting of import demand and export supply equations for both agricultural and industrial products. It uses quarterly time-series U.S. and Canadian trade data for 1972–1985.
The study uses the two-stage least-squares estimator to estimate the models. The models had R coefficients ranging from 0.78 to 0.99, indicating that the models' explanatory variables explain most causes of variations in the dependent variable. This study reveals that U.S. imports of agricultural and industrial products from Canada were more sensitive than were Canadian imports not only to import and domestic prices but also to world prices. This is because Canadian consumers have less domestic substitutes than do their U.S. counterparts. Also, Canada has a smaller internal market than does the United States. The study estimates that U.S. imports from Canada will increase $2.8 billion while Canadian imports from the United States will increase $1.2 billion. The impact on the two countries' trade with third-party countries will be insignificant.     

Intertemporal Permit Trading for the Control of Greenhouse Gas Emissions

This paper integrates two themes in the intertemporal permitliterature through the construction of an intertemporal bankingsystem for a pollutant that creates both stock and flow damages. A permit banking system for the special case of a pollutant thatonly causes stock damages is also developed. This latter,simpler case corresponds roughly to the greenhouse gas emissionreduction regime proposed by the U.S. Department of State as ameans of fulfilling the U.S. commitment to the FrameworkConvention on Climate Change. This paper shows that environmentalregulators can achieve the socially optimal level of emissionsand output through time by setting the correct total sum ofallowable emissions, and specifying the correct intertemporaltrading ratio for banking and borrowing. For the case ofgreenhouse gases, we show that the optimal growth rate of permitprices, and therefore the optimal intertemporal trading rate, hasthe closed-form solution equal to the ratio of current marginalstock damages to the discounted future value of marginal stockdamages less the decay rate of emissions in the atmosphere. Given a non-optimal negotiated emission path we then derive apermit banking system that has the potential to lower net socialcosts by adjusting the intertemporal trading ratio taking intoaccount the behavior of private agents. We use a simplenumerical simulation model to illustrate the potential gains fromvarious possible banking systems.     

Liberalizing U.S. Trade with the Eastern Bloc: What are the consequences?

This paper provides estimates of the trade and welfare consequences of removing the high discriminatory tariffs that the United States imposes against imports from the Soviet Union and its allies. These imports are now taxed at Smoot-Hawley rates. The estimates of the trade effects exceed those of previous studies, in part because the recent “Tokyo Round” of multilateral trade concessions has increased the tariff discrimination against the non-MFN (Most Favored Nation) suppliers. The study is the first to assess the welfare consequences of eliminating this discrimination. It is estimated that the overall annual gain to the United States would be about $1.8 billion and that the annual gain to the communist suppliers would be between $1.2 billion and $1.7 billion.     

Oil shale and climate policy in the shift to a low carbon and more resilient economy

Policy makers worldwide are recently debating options to implement an effective climate policy that would put a cap on green house gas emissions. At the same time, investors are carefully evaluating the profitability of unconventional fossil fuels such as shale oil. To enhance the understanding of the impacts of a climate policy such as the American Clean Energy and Security Act of 2009, on oil shale production – and vice versa – we have customized an integrated assessment model, the Climate and Energy Assessment for Resiliency model for Unconventional Fossil Fuels to the U.S. Western Energy Corridor. Our analysis indicates that while the bill would increase the production cost of oil shale, the industry remains highly profitable in the longer-term, generating a potential profit of about $10 to $16 billion per year by 2040 at 2.5 million barrels per day. These results suggest that the oil shale industry may comfortably face the enactment of a carbon policy, albeit with some caveats. Furthermore, while its potential economic impact on non-compliant industries may be severe, it would generate mounting profits for those achieving energy efficiency gains, thereby increasing the profitability of energy efficiency investments.     

The U.S. allowance trading system for sulfur dioxide: An update on market experience

In 1990, the U.S. Congress passed legislation that amended the Clean Air Act to create a new program to mitigate the effects of acid deposition in the U.S. through emission reductions of sulfur dioxide (SO₂) and nitrogen oxides (NO_x) at electric utility plants across the country. The SO₂ reductions, totalling a 40% reduction nationally from 1980 levels or a 10 million ton reduction annually, are achieved largely through an emission trading system, the largest program of its kind designed to date. This trading system has the potential to save up to half of the compliance costs associated with more traditional source-by-source emission limit programs.This paper briefly discusses background on the acid rain issue in the United States, and the principal features of the program, including: a permanent cap on utility emissions of SO₂ beginning in 2010, decision to grant up-front allocation of emission credits to reduce individual approvals of trades, the use of continuous emission monitors and automatic penalties to ensure compliance, and integration of the Acid Rain program requirements with other Clean Air Act programs. The paper also discusses the development of the allowance trading market to date, including the types of compliance options chosen and quantity and type of emissions trading being conducted.The U.S. Government right to retain a non-exclusive, royalty free licence in and to any copyright is acknowledged.     

Optimal intensity targets for greenhouse gas emissions trading under uncertainty

Uncertainty is an obstacle for commitments under cap and trade schemes for emission permits. We assess how well intensity targets, where each country’s permit allocation is indexed to its future realized GDP, can cope with uncertainties in international greenhouse emissions trading. We present some empirical foundations for intensity targets and derive a simple rule for the optimal degree of indexation to GDP. Using an 18-region simulation model of a cooperative, global cap-and-trade treaty in 2020 under multiple uncertainties and endogenous commitments, we show that optimal intensity targets could reduce the cost of uncertainty and achieve significant increases in global abatement. The optimal degree of indexation to GDP would vary greatly between countries, including super-indexation in some advanced countries, and partial indexation for most developing countries. Standard intensity targets (with one-to-one indexation) would also improve the overall outcome, but to a lesser degree and not in all individual cases. Although target indexation is no magic wand for a future global climate treaty, gains from reduced cost uncertainty and the potential for more stringent environmental commitments could justify the increased complexity and other potential downsides of intensity targets.      

THE COST OF THE U.S. SUGAR PROGRAM REVISITED

The article analyzes the welfare cost of the U.S. sugar program using a multimarket model of U.S. sweetener markets. The latter includes raw crops, sugar extraction and refining, and sweetener users (food-processing industries and final consumers). The authors address the industrial organization of food industries using sweeteners and treat the United States as a large importer. With the removal of the program, this article estimates (all figures in 1999 dollars) that in 1998 cane growers, sugar beet growers, and processors would have lost $307, $650, and $89 million, respectively; sweetener users would have gained $1.9 billion. World prices would have increased by 13.2%. The deadweight loss of the program is estimated at $532 million.     

Veblen and Kropotkin on Human Evolution

This paper studies the spillover effects of economic fluctuations in the United States on economic activity in Latin America and the Caribbean. Fluctuations in U.S. GDP growth have spillover effects that stimulate real growth and accelerate price inflation across many countries. Underlying these spillover effects are significant movements in private consumption, and to a larger extent, private investment. Openness to the United States has significant effects that accelerate growth of exports and/or imports across many countries. The net effects on the trade and current account balances vary across countries. Overall, the evidence supports concerns about adverse spillover effects of a slowdown in the U.S. economy on neighboring countries, necessitating careful mobilization of countercyclical domestic tools to hedge against potential risk and mitigate the severity of economic downturns.     

What to expect from an international system of tradable permits for carbon emissions

We use an econometrically-estimated multi-region, multi-sector general equilibrium model of the world economy to examine the effects of using a system of internationally-tradable emissions permits to control world carbon dioxide emissions. We focus, in particular, on the effects of the system on flows of trade and international capital. Our results show that international trade and capital flows significantly alter projections of the domestic effects of emissions mitigation policy, compared with analyses that ignore international capital flows, and that under some systems of international permit trading the United States is likely to become a significant permit seller, the opposite of the conventional wisdom.     

TRADE CREATION AND DIVERSION EFFECTS OF THE U.S.-CANADIAN FREE TRADE AGREEMENT

This study empirically estimates and evaluates the economic benefits of the U.S. and Canadian Free Trade Agreement (FTA). Most past studies rely on aggregate data. The analysis here emphasizes the trade effects of removing tariff and nontariff barriers on each commodity group classified by the Standard International Trade Classification. Estimating the amount of trade expansion under FTA for both countries involves using the import demand elasticities from a dynamic demand model. Results show that U.S. imports from Canada are more sensitive to domestic, import, and world prices than are Canadian imports from the United States. U.S. imports from Canada would increase roughly £3.257 billion compared to the £2.432 billion increase for Canadian imports from the United States .     

Bioenergy Crop Production in the United States: Potential Quantities, Land Use Changes, and Economic Impacts on the Agricultural Sector

The U.S. Departments of Agriculture and Energyjointly analyzed the economic potential for,and impacts of, large-scale bioenergy cropproduction in the United States. Anagricultural sector model (POLYSYS) wasmodified to include three potential bioenergycrops (switchgrass, hybrid poplar, and willow). At farmgate prices of US $2.44/GJ, anestimated 17 million hectares of bioenergycrops, annually yielding 171 million dry Mg ofbiomass, could potentially be produced at aprofit greater than existing agricultural usesfor the land. The estimate assumes highproductivity management practices are permittedon Conservation Reserve Program lands. Traditional crops prices are estimated toincrease 9 to 14 percent above baseline pricesand farm income increases annually by US $6.0billion above baseline.At farmgate prices of US $1.83/GJ, anestimated 7.9 million hectares of bioenergycrops, annually yielding 55 million dry Mg ofbiomass, could potentially be produced at aprofit greater than existing agricultural usesfor the land. The estimate assumes managementpractices intended to achieve highenvironmental benefits on Conservation ReserveProgram lands. Traditional crops prices areestimated to increase 4 to 9 percent abovebaseline prices and farm income increasesannually by US $2.8 billion above baseline.     

Update on the environmental and economic costs associated with alien-invasive species in the United States

Invading alien species in the United States cause major environmental damages and losses adding up to almost $120 billion per year. There are approximately 50,000 foreign species and the number is increasing. About 42% of the species on the Threatened or Endangered species lists are at risk primarily because of alien-invasive species.     

THE LOOMING U.S. EXTERNAL DEBT: HOW SERIOUS IS IT?

This article examines the state of U.S. external debt accumulation, especially the rising burden of interest payments. It points out that the favorable yield differential between U.S. external assets and liabilities may be declining at the same time the United States has become the world's largest international debtor. The favorable yield differential has enabled the United States, which became a net debtor in 1987, to avoid making net interest payments on its international debt until 1994. However, servicing the increasing U.S. net international debt is likely to be a much greater burden in the future as the favorable yield gap wanes while net debt continues to grow.     

THE ECONOMIC VALUE OF PROTECTING INVENTORIED ROADLESS AREAS: A SPATIAL HEDONIC PRICE STUDY IN NEW MEXICO

The objective of this paper is to examine the off‐site benefits, as capitalized into housing values, of protecting 1.6 million acres of Inventoried Roadless Areas (IRAs) in the state of New Mexico, United States. In light of petitions filed by various U.S. states to maintain the status of IRAs as roadless lands, spatial hedonic price models are estimated and used to calculate the implicit value of IRAs in New Mexico. Findings show that a two‐stage least squares (2‐SLS), robust spatial‐lag model is the most appropriate econometric representation of the hedonic price function, and that IRA lands are a significant and positive determinant of house value. After controlling for the presence of Wilderness Areas (WAs) and other characteristics, results indicate that, on average, there is a 5.6% gain in the property value of a house from being located in, or adjacent to, a Census tract with IRAs. In the aggregate, this gain represents 3.5% of the value of all owner‐occupied units in New Mexico ($1.9 billion in capitalized value, or an annualized value in perpetuity of $95 million, assuming a 5% interest rate). (JEL R22, H40, Q51, C21)     

美国奥巴马总统“气候行动计划”解读

2013年6月,美国总统奥巴马在华盛顿乔治城大学发表关于应对气候变化的讲话,发布了"总统气候行动计划",重申到2020年美国实现在2005年基础上减排温室气体17%的承诺,并从减少温室气体排放、应对气候变化的不利影响和领导国际合作三个方面系统阐释了美国联邦政府将采取的一系列举措,这是迄今为止美国政府最全面综合的气候政策。通过分析和梳理该"气候行动计划"推出的背景、主要内容以及美国各界的反应等,指出了该计划的实质和存在的一些问题,包括在实施范围、执行力度、持续性和有效性等方面的局限性。     

Enforcing Emissions Trading when Emissions Permits are Bankable

We propose enforcement strategies for emissions trading programs with bankable emissions permits that guarantee complete compliance with minimal enforcement costs. Our strategies emphasize imperfect monitoring supported by a high unit penalty for reporting violations, and tying this penalty directly to equilibrium permit prices. This approach is quite different from several existing enforcement strategies that emphasize high unit penalties for emissions in excess of permit holdings. Our analysis suggests that a high penalty for excess emissions cannot be used to conserve monitoring effort, and that it may actually increase the amount of monitoring necessary to maintain compliance.The authors are grateful to Anthony Heyes and three anonymous referees for their valuable comments. Partial support for this research was provided by the Cooperative State Research Extension, Education Service, U. S. Department of Agriculture, Massachusetts Agricultural Experiment Station under Project No. MAS00871.