Working Paper: NBER ID: w26172
Authors: Ryan Kellogg
Abstract: Output-based carbon regulations—such as fuel economy standards and the rate-based standards in the Clean Power Plan—create well-known incentives to inefficiently increase output. Similar distortions are created by attribute-based regulations. This paper demonstrates that, despite these distortions, output and attribute-based standards can always yield greater expected welfare than “flat” emission standards given uncertainty in demand for output (or attributes), assuming locally constant marginal damages. For fuel economy standards, the welfare-maximizing amount of attribute or mileage-basing is likely small relative to current policy. For the electricity sector, however, an intensity standard may yield greater expected welfare than a flat standard.
Keywords: carbon regulation; uncertainty; welfare; emissions standards
JEL Codes: D81; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| emissions regulations (L98) | expected welfare (D69) |
| output or attribute-based emissions standards (Q52) | expected welfare (D69) |
| marginal abatement costs uncertainty (D89) | expected welfare (D69) |
| shocks to marginal value of output or attributes (D89) | expected welfare (D69) |
| output-basing (L23) | expected welfare (D69) |
| intensity standard (L94) | expected welfare (D69) |
| uncertainty in future output (D89) | optimal amount of output-basing (E23) |
| extent of emissions affected by output shocks (Q43) | optimal amount of output-basing (E23) |
| inelasticity of output concerning cost (D24) | optimal amount of output-basing (E23) |