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A team of Brookings economists found that a broad carbon tax would be less costly than an electricity-only tax.
Some proponents of climate policy have pushed for a more limited-scope approach to an economy-wide cap-and-trade bill, including applying the cap-and-trade program only to carbon dioxide emissions from electricity generation.
To determine the best scenario, the authors of a Brookings discussion paper used a model to compare a power-sector-only climate policy with economy-wide measures, according to an executive summary of the report.
After using various scenarios, the paper’s authors found that the power-sector-only approach requires a price on CO2 that begins at $23 in 2012 and rises to $46 in 2030, while the economy-wide price begins at $13 in 2012 and rises to $25 in 2030, the report states.
“We find that a price on carbon only in the power-sector does not produce offsetting increases in emissions in other sectors,” the authors write. “Rather, we find that carbon emissions outside the power sector fall slightly relative to baseline. This is because of the economic linkages between sectors and the consequences of higher electricity prices on economy-wide economic activity.”
Read more, including data and charts, here.