Federal Coal Program Reform, the Clean Power Plan, and the Interaction of Upstream and Downstream Climate Policies

Abstract

Can supply-side environmental policies that limit the extraction of fossil fuels reduce CO2 emissions? We study interactions between a specific supply-side policy — an environmental charge on federal coal, or "royalty adder" — and demand-side emissions regulation under the Clean Power Plan (CPP). Using a detailed dynamic model of the power sector, we estimate that, absent the CPP, a royalty adder equal to the social cost of carbon would generate three-quarters of the projected CPP emissions reductions. With the CPP in place, the royalty adder reduces emissions by reducing leakage and causing the CPP to be non-binding in some scenarios.

Todd Gerarden, Harvard University

W. Spencer Reeder, Vulcan Philanthropy

James H. Stock, Harvard University