Policy Spillovers, Technological Lock-In, and Efficiency Gains from Regional Pollution Taxes in the U.S.

We used the US-TIMES energy-system model in conjunction with integrated assessment models for air pollution (AP3, EASIUR, InMAP) to estimate the consequences of local air pollutant (LAP) and carbon dioxide (CO₂) policy on technology-choice, energy-system costs, emissions, and pollution damages in the United States. We report substantial policy spillover: Both LAP and CO₂ taxes cause similar levels of decarbonization. Under LAP taxes, decarbonization was a result of an increase in natural gas generation and a near-complete phaseout of coal generation in the electric sector. Under a CO₂ tax, the majority of simulated decarbonization was a result of increased electric generation from wind and solar. We also found that the timing of the CO₂ and LAP taxes was important. When we simulated a LAP tax beginning in 2015 and waited until 2025 to introduce a CO₂ tax, the electric sector was locked into higher levels of natural gas generation and cumulative 2010–2035 energy system CO₂ emissions were 8.8 billion tons higher than when the taxes were implemented simultaneously. A scenario taxing CO₂ and LAPs simultaneously beginning in 2015 produced the highest net benefits, as opposed to scenarios that target either CO₂ or LAPs, or scenarios that delayed either LAP or CO₂ taxes until 2025. Lastly, we found that net benefits compared to business as usual are higher under a regional versus a national LAP-tax regime, but that efficiency gains under the regional tax are not substantially higher than those under the national LAP-tax policy.