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Question: What are the Potential Effects of a Carbon Price Increase?
Political momentum for carbon pricing (Cap and Trade)
Approach: Use an integrated engineering/economic model developed by Tim Haab (AED Econ), Bhavik Bakshi (Chemical Engineering) and Prem Goel (Statistics) to predict the sector and state specific effects of an increase in carbon prices.
The model used here is still under development and all results reported here are preliminary.
Scenario: A price increase of $.05 per kilogram of Carbon
Equivalent to $35/ ton of coal $5/barrel of oil $27.87/103 m3 of natural gas
Roughly a 25% increase in the price of each at the time of the analysis
Waxman-Markey and Boxer-Kerry set the reserve allowance price at $28/ton or $.028-$.031 per kilogram.
The majority of reductions in CO2 will fall on power generation
Why should Ohio care?
Source: US EIA
Ohio generated about 13,000,000 megawatt hours electricity in December 2008.
Why should Ohio care?Ohio generated about 13,000,000 megawatt
hours electricity in December 2008.99.4% of that is coal-fired (according to EIA).
Source: US EIA
Why should Ohio care?Our model predicts that due to the high
carbon content of coal, carbon pricing will have large impacts on coal prices and production…
…and manufacturing……and transportation and warehousing
0 2 4 6 8 10 12 14 16
GovernmentOther services, except government
Arts, entertainment, recreation, accommodation, food
Educational, health care, and social assistanceProfessional and business services
Finance, insurance, real estate, rental, and leasingInformation
Transportation and w arehousing
Retail tradeWholesale trade
Manufacturing
ConstructionPetroleum refineries
Water, sew age and other systemsNatural gas distribution
Other electricity
Nuclear pow ered electPetroleum fired elect
N/G fired electCoal f ired elect
Hydro pow ered elect
Support activities for miningNonmetallic mineral mining and quarrying
Metal ores mining
Coal miningOil and gas extraction
Support activities for agriculture and forestryFishing, hunting and trapping
Forestry and logging
Animal productionCrop production
(Unit: %)
tax itself
direct input use
indirect input use
Preliminary Results: Percentage change in prices due to carbon pricing (by sector)
-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0
Government
Other services, except government
Arts, entertainment, recreation, accommodation, food
Educational, health care, and social assistance
Professional and business services
Finance, insurance, real estate, rental, and leasing
Information
Transportation and w arehousing
Retail trade
Wholesale trade
Manufacturing
Construction
Petroleum refineries
Water, sew age and other systems
Natural gas distribution
Other electricityNuclear pow ered elect
Petroleum fired elect
N/G f ired elect
Coal f ired elect
Hydro pow ered elect
Support activities for mining
Nonmetallic mineral mining and quarrying
Metal ores mining
Coal mining
Oil and gas extraction
Support activities for agriculture and forestry
Fishing, hunting and trapping
Forestry and logging
Animal production
Crop production
(unit: %)
SC3
SC2
SC1
Preliminary Results: Percentage decrease in production due to carbon pricing (by sector—three scenarios)
Percentage of GDP in Utilities, Manufacturing and Transportation/Warehousing
Source: US BEA
Why should Ohio care?Ohio’s economy is heavily invested in
industries likely to be most affected by Carbon prices relative to other states.
Ohio is poorly positioned to adapt to a shift to renewable energy production
Source: US EIA
A Brief Diversion on Green JobsDo climate policy and economic stimulus
make for a soggy dinner?
A Brief Diversion on Green JobsDo climate policy and economic stimulus
make for a soggy dinner?Rob Stavins, Harvard University
“Let’s say I want to have a dinner party. It’s important that I cook dinner, and I’d also like to take a shower before the guests arrive. You might think, Well, it would be really efficient for me to cook dinner in the shower. But it turns out that if I try that I’m not going to get very clean and it’s not going to be a very good dinner.”
Cap and Trade and Green JobsClimate policy should target climate goals…
efficiently.Stimulus policy should target stimulus…
efficiently.Using climate policy to target stimulus or
vice-versa results in bad climate policy and bad stimulus……in times of full employmentBut what about now?
The TakeawayPreliminary analysis shows that any type of
carbon pricing will result in disproportionate economic impacts on states heavily invested in coal-fired electricity generation, manufacturing and transportation and warehousing.
The TakeawayOhio is currently underinvested in renewable
energy production relative to similar states.
The TakeawayThe historic economic reliance of Ohio and
similar states on coal based electricity generation, manufacturing and transportation and warehousing means Ohio will disproportionately absorb the economic impacts of carbon pricing.
The TakeawayAn open question remains how best to
allocate carbon pricing revenues, once collected, to ensure long-term economic sustainability of states disproportionately reliant on carbon intensive production.
Thank YouTim [email protected]
