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An analysis of US greenhouse gas cap-and-trade proposals using a forward-looking economic model
Environment and Development Economics (2011)
  • Angelo Costa Gurgel
  • Sergey Paltsev, Massachusetts Institute of Technology
  • John Reilly, Massachusetts Institute of Technology
  • Gilbert Metcalf, Tufts University
Abstract

We develop a forward-looking version of the recursive dynamic MIT Emissions Prediction and Policy Analysis (EPPA) model, and apply it to examine the economic implications of proposals in the US Congress to limit greenhouse gas (GHG) emissions.We find that shocks in the consumption path are smoothed out in the forwardlooking model and that the lifetime welfare cost of GHG policy is lower than in the recursive model, since the forward-looking model can fully optimize over time. The forward-looking model allows us to explore issues for which it is uniquely well suited, including revenue-recycling and early action crediting. We find capital tax recycling to be more welfare-cost reducing than labor tax recycling because of its long-term effect on economic growth. Also, there are substantial incentives for early action credits; however, when spread over the full horizon of the policy they do not have a substantial effect on lifetime welfare costs.

Keywords
  • Forward looking model,
  • climate policy,
  • U.S.
Disciplines
Publication Date
2011
Citation Information
Angelo Costa Gurgel, Sergey Paltsev, John Reilly and Gilbert Metcalf. "An analysis of US greenhouse gas cap-and-trade proposals using a forward-looking economic model" Environment and Development Economics Vol. 16 Iss. 2 (2011)
Available at: http://works.bepress.com/angelo_gurgel/13/