Working Paper: NBER ID: w22255
Authors: Kyle C. Meng
Abstract: This paper develops a method for forecasting the marginal abatement cost (MAC) of climate policy using three features of the failed Waxman-Markey bill. First, the MAC is revealed by the price of traded permits. Second, the permit price is estimated using a regression discontinuity design (RDD) comparing stock returns of firms on either side of the policy’s free permit cutoff rule. Third, because Waxman-Markey was never implemented, I extend the RDD approach to incorporate prediction market prices which normalize estimates by policy realization probabilities. A final bounding analysis recovers a MAC range of $5 to $19 per ton CO2e.
Keywords: marginal abatement cost; climate policy; Waxman-Markey bill; regression discontinuity design; prediction markets
JEL Codes: G14; Q52; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| permit price (D41) | MAC (Y20) |
| Waxman-Markey bill (Q58) | MAC (Y20) |
| free permits (R48) | stock returns (G12) |
| energy intensity threshold (L94) | stock returns (G12) |