A Path to Greenhouse Gas Reductions in the United States: Economic Modeling of Interim National Targets

Author(s): Brian Murray, Martin Goss, Etan Gutterman

Published: September 2007

download: working paper (.pdf) >

Momentum is building in the U.S. to consider mandatory caps for greenhouse gas emissions. The U.S. Senate has expressed support for such action if it will not cause significant harm to the U.S. economy and will engage other countries. This position motivates the need for economic assessment of potential GHG restrictions on the U.S. economy. Toward that end, this study employs a computable general equilibrium model of the U.S. integrated into the global economy (ADAGE) and a detailed model of the U.S. energy sector (NI-NEMS) to examine the broad and deep economic implications of interim-term GHG cap-and-trade programs across sectors and regions of the U.S. economy over time. Interim target scenarios hold U.S. emissions to either 1990 or 2005 levels in the year 2020 and hold this level fixed beyond that. These 2020 emission targets are in the range of those now being considered by the U.S. Congress, though several of the Congressional proposals call for continued cuts beyond 2020. This study therefore provides a bounding assessment of the initial pathway to GHG reductions, one which can provide a first order assessment of “economic harm” and provides a platform for gauging the implications of longer term cuts should they be applied. Results suggest rather modest macroeconomic impacts on the U.S. economy of the GHG targets considered, though impacts tend to be concentrated, as expected, in the more energy intensive sectors. The electric power sector has some of the least costly options for reducing emissions through decarbonization of power generation and could end up being net sellers of GHG allowances to other sectors in a cap-and-trade program, depending on how the initial GHG allowances are allocated. In addition to synthesizing economic results from the interim targets modeled, the paper discusses the implications for longer term and deeper cuts beyond those considered here.