ECONOMIC IMPACTS OF
CARBON FEES AT THE
STATE- AND LOCAL-LEVEL
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Regional Economic Models, Inc. (REMI)
Presentation Author
Scott Nystrom, M.A.
•Senior Economic Associate
•(202) 716-1397
•<[email protected]>
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Presentation Agenda
Carbon
Fees
Economic
Theory
Study
Methods
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Previous
Studies
Example
Results
Carbon Fees

Fees paid for releasing carbon dioxide into the air
 An
incentive to reduce fossil fuel consumption
 $1.00 per
metric ton of carbon dioxide roughly equates to
around $0.01 per gallon of motor gasoline
 Generates
revenues to go towards other purposes
 Tax
relief, energy efficiency, compensating low-income
groups, general government expenditures, etc.

Analogous programs throughout North America
 British
Columbia has had a carbon fee since 2008
 Carbon pricing mechanisms (through auctions) in
California, the Northeast (RGGI), and Quebec
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Price Elasticity
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Economic Theory

Arthur Cecil Pigou
1877-1959
 Cambridge University



Founding figure in
welfare economics and
important contributor to
microeconomics
Developed the concept
of “externality”

Buyers and sellers do not
consider all costs and
benefits themselves


“Social cost”
“Pigouvian taxes”
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Example Externalities
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Policy Questions
The Economy
and Job Creation
CO2 Emission and
Air Quality
EPA 111(d)
Regulations
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Revenues and
the Budget
Low-Income
Peoples
Previous Studies
State-Level Carbon Fees
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National-Level Carbon Fee
Study Methods
Electrical
Dispatch
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Price
Elasticity
Regional
Macro
Income
Strata
Electrical Dispatch
2014
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2034
Price Elasticity

Carbon Tax (or Price)
Analysis Model

Price on carbon
emissions
Keibun Mori

Open-sourced
Public data only from
the U.S. DOE
 Previous applications:

Massachusetts
 Washington


King County, WA
California
 Federal (9-regions)
 Vermont

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Changes end-use
energy prices
Reduces demand
for energy
Change from AEO
reference case
Tax revenues =
price*emissions
Regional Macro
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Integrating Models
CTAM Model
REMI PI+ Model
• Energy costs for petroleumderived products, natural
gas, and electricity
• Residential, commercial, and
industrial sectors
• Variables for energy-related
costs of living and doing
business in a region
• Revenue recycling measures
• GDP and population growth
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Revenue recycled
to program in
British Columbia
$50
$25
$0
 Similar
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LOW
MEDIUM
HIGH
2040

$75
2036
electricity (already
covered by RGGI)
$100
2032
 Not
$125
2028
liquid and
gaseous fuels
$150
2024
 Covers
$175
2020
Fee paid in Vermont
for emitting carbon
dioxide into the air
2016

Carbon tax rate (2014 dollars per
metric ton of carbon dioxie)
Vermont Proposal
Revenue Recycling
2% 2%
2%
1% 2%
1%
Individual Rebate Credits
Low-Income Supplement
Corporate Income Tax Cuts
39%
22%
Employment-Based Rebate
C&I Heating and Process
Vehicle Electrification
Vehicle Hybridization
Solar Tax Credits
Market Rate Weatherization
23%
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6%
Low-Income Weatherization
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
Jobs (over/under baseline)
Total Employment
3,500
3,000
2,500
2,000
LOW
1,500
MEDIUM
1,000
HIGH
500
0
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GDP by Industry
Construction
Other Services, except Public Administration
Manufacturing
Health Care and Social Assistance
Professional, Scientific, and Technical Services
Real Estate and Rental and Leasing
Finance and Insurance
Information
Arts, Entertainment, and Recreation
Accommodation and Food Services
Management of Companies and Enterprises
Forestry, Fishing, and Related Activities
Administrative and Waste Management Services
Educational Services
Wholesale Trade
Mining
Retail Trade
State and Local Government
Utilities
Transportation and Warehousing
-$30
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-$18
$0
-$1
-$4
-$5
$3
$2
$2
$1
$1
$1
$1
$0
$8
$6
$6
$24
$20
$18
$15
-$20
-$10
$0
$10
$20
Millions of 2014 dollars (annual average)
$30
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
Change from baseline
Cost-of-Living
0.50%
0.45%
0.40%
0.35%
0.30%
0.25%
LOW
0.20%
MEDIUM
0.15%
HIGH
0.10%
0.05%
0.00%
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2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
Millions of 2014 dollars
State Revenues
$800
$700
$600
$500
$400
LOW
$300
MEDIUM
HIGH
$200
$100
$0
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2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
Millions of metric tons
CO2 Emissions
8
7
6
5
LOW
4
MEDIUM
3
HIGH
2
BASELINE
1
0
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Main Takeaways
Economic
Fiscal
• 1,500 to 3,000 additional jobs
• Additional GSP and real personal income
• $500 million to $700 million per year
• Declines with emissions in long-term
Emissions
• Falls up to 40% from the baseline
• Split between price and efficiencies
Demographic
• 2,000 to 4,000 more Vermonters
• Responding to stronger labor market
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British Columbia
Economy (GDP)
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Emissions (Petroleum Sales)
Regional Economic Models, Inc.
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Washington, DC 20006
(202) 716-1397
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