NERA Economic Consulting's Study of US Emissions Reduction Policies: Statement of Facts

In a recent report, NERA analyzed the impact on the US economy from 2016 to 2040 if companies in the industrial sector were required to share a role in US greenhouse emissions reduction effort. The emissions reduction path analyzed was designed to be consistent both with 2025 targets announced in advance of the Paris Agreement, and with post-2025 US reductions to meet a 2050 goal of 80% reduction in US emissions that was also being discussed by the Obama Administration.

NERA Associate Directors Dr. Paul Bernstein and Dr. Sugandha Tuladhar, Affiliated Consultant Dr. David Montgomery, and Senior Analyst Bharat Ramkrishnan authored the report, which was commissioned by the American Council for Capital Formation Center for Policy Research.

The NERA authors studied various emissions reduction scenarios employing a combination of market-based and direct measures. The study highlights the fact that regulatory measures are an inefficient way to achieve climate goals. While all examined scenarios resulted in negative economic impacts, scenarios that allow more flexibility achieve the same or greater emission reductions at a lower economic cost. The anal­ysis also shows that in the next 10 years, regulating the industrial sector to achieve NDC goals would be responsible for most of the overall impact on the economy. In addition, the study illustrates the challenges associated with emissions leakage. Regardless of which regulatory scenario is pursued, emissions leakage is likely to undermine environmental goals unless other countries impose similarly stringent emissions restrictions.

NERA conducted the study using the NewERA integrated model, which consists of a computable general equilibrium model of the US economy and a detailed capacity-planning and dispatch model of the North American electricity system. The modeling framework captures interactions among all parts of the economy due to the reduction in GHG emissions.