Costs of reducing emissions

In a brief issued yesterday, the Congressional Budget Office (CBO) discusses the economic costs of reducing greenhouse-gas emissions in the U.S. in terms of (1) determinants of costs, and (2) size of costs.

What determines the costs of reducing emissions?

• Emissions in the absence of policy changes - if emissions are allowed to grow, mitigation costs would be greater
• Types of policies adopted - regulatory or market-based
• Response of the economy - the more easily producers and consumers can respond to price changes, the lower costs would be
• Efforts by other countries - their policies would influence U.S. costs

How large are estimated costs?

• Changes in energy use and emissions - changes are only modest in the near term, thru 2025
• Allowance prices - projections relate to H.R. 2454 (see below)
• Macroeconomic impact - net effects on GDP are likely to be negative because most benefits are expected in the second half of this century
• Impact on employment - H.R. 2454 would cause a significant shift in the composition of employment
• Distribution of costs - under H.R. 2454, the loss in purchasing power would be distributed to benefit lower-income households

CBO uses studies of H.R. 2454 (pdf, 1428pp), the American Clean Energy and Security Act of 2009, for its range of estimates.

The Costs of Reducing Greenhouse-Gas Emissions, Nov. 23, 2009
      Brief (pdf, 12pp/656kB)
      Blog