Analyzing the Changing US Carbon Policy Landscape

14 March 2012
Dr. Sugandha D. Tuladhar, Scott Bloomberg, et al.

The landscape for US carbon policy has evolved significantly over the past several years. As recently as 2009, there were multiple legislative proposals moving through Congress aimed at establishing a national cap-and-trade system for reducing carbon emissions throughout the economy. However, in the wake of the financial crisis and shifting political sentiments, these market-based economic instruments have more or less been scrapped and replaced with proposals for command-and-control regulatory mandate frameworks. The variety of specific and potentially overlapping regulatory regimes creates a complex policy landscape with many potential unforeseen risks and unintended impacts. In this NERA paper, Vice Presidents Scott Bloomberg and Dr. Sugandha D. Tuladhar and Consultant Sebastian Mankowski evaluate the impacts of different types of carbon policies, such as cap-and-trade and non-market based mandates (command and control policies) that are aimed at the electric power and transportation sectors. Key to this evaluation is a series of comparisons of the costs and benefits resultant from implementation of these different policies. Using the NewERA model, NERA's proprietary energy, economic, and environmental policy analysis tool, the authors explore four such potential policies and compare them against a baseline without any carbon policies. The authors find that each of the policies they examined has costs that extend beyond their targeted sector(s). These costs have significant macroeconomic implications, including a loss of purchasing power for households due to higher energy costs and decreased wages and/or lower levels of employment.