Measuring the Environmental Effectiveness
of a Carbon Tax
Marc Hafstead
Resources for the Future
September 19, 2013
Hafstead
Retrospective Analysis
Evaluating Environmental Effectiveness:
A Modeler’s Perspective
U.S. CO2 Emissions 10.0 8.0 Reference Case Carbon Tax 7.0 6.0 5.0 4.0 3.0 2.0 1.0 2050 2045 2040 2035 2030 2025 2020 0.0 2015 Billions Metric Tons CO2 9.0 Year Hafstead
Retrospective Analysis
1/6
Evaluating Environmental Effectiveness
Defining Effectiveness
Measurement Challenges
Potential Solutions
Hafstead
Retrospective Analysis
2/6
Defining Environmental Effectiveness
What are the environmental goals of a U.S. Carbon Tax?
Prevention of bad outcomes?
Reduction or minimization of bad outcomes?
Hafstead
Retrospective Analysis
3/6
Defining Environmental Effectiveness
What are the environmental goals of a U.S. Carbon Tax?
Prevention of bad outcomes?
Reduction or minimization of bad outcomes?
What is the measuring stick?
Average Global Temperature
Sea Level
Snow Cover
Number and Severity of Extreme Weather Events
Hafstead
Retrospective Analysis
3/6
Defining Environmental Effectiveness
What are the environmental goals of a U.S. Carbon Tax?
Prevention of bad outcomes?
Reduction or minimization of bad outcomes?
What is the measuring stick?
Average Global Temperature
Sea Level
Snow Cover
Number and Severity of Extreme Weather Events
What is the appropriate time-frame?
Short or Medium Term vs. Long-Term
Hafstead
Retrospective Analysis
3/6
Measurement Challenges
To effectively identify the impact of a carbon tax on environmental
outcomes, we would need to
Hafstead
Retrospective Analysis
4/6
Measurement Challenges
To effectively identify the impact of a carbon tax on environmental
outcomes, we would need to
1
Identify the causal link between the tax and emissions
Carbon taxes incentivize emissions reductions
Question is how much
Hafstead
Retrospective Analysis
4/6
Measurement Challenges
To effectively identify the impact of a carbon tax on environmental
outcomes, we would need to
1
Identify the causal link between the tax and emissions
Carbon taxes incentivize emissions reductions
Question is how much
2
Identify the causal link between emission reductions and the
environmental outcomes
Is there a symmetrical response of the climate to emissions?
How long until changes in the environment become measurable?
Hafstead
Retrospective Analysis
4/6
Measurement Challenges
Estimating The Impact of a U.S. Carbon Tax on Emissions
Causation vs. Correlation in Single Event Studies
Lack of variation
Hafstead
Retrospective Analysis
5/6
Measurement Challenges
Estimating The Impact of a U.S. Carbon Tax on Emissions
Causation vs. Correlation in Single Event Studies
Lack of variation
Dynamic Response
Optimal economic responses may be gradual (i..e changes in
generation mix or fuel-efficiency of the auto fleet)
Hafstead
Retrospective Analysis
5/6
Measurement Challenges
Estimating The Impact of a U.S. Carbon Tax on Emissions
Causation vs. Correlation in Single Event Studies
Lack of variation
Dynamic Response
Optimal economic responses may be gradual (i..e changes in
generation mix or fuel-efficiency of the auto fleet)
Policy Interactions
How do we disentangle effect of carbon tax on emissions from
effect of other environmental policies (State RPS, CA
cap-and-trade, EPA regulation, etc)
Hafstead
Retrospective Analysis
5/6
Measurement Challenges
Estimating The Impact of a U.S. Carbon Tax on Emissions
Causation vs. Correlation in Single Event Studies
Lack of variation
Dynamic Response
Optimal economic responses may be gradual (i..e changes in
generation mix or fuel-efficiency of the auto fleet)
Policy Interactions
How do we disentangle effect of carbon tax on emissions from
effect of other environmental policies (State RPS, CA
cap-and-trade, EPA regulation, etc)
Emissions Leakage
Over space and time
Hafstead
Retrospective Analysis
5/6
Measurement Challenges
Estimating The Impact of a U.S. Carbon Tax on Emissions
Causation vs. Correlation in Single Event Studies
Lack of variation
Dynamic Response
Optimal economic responses may be gradual (i..e changes in
generation mix or fuel-efficiency of the auto fleet)
Policy Interactions
How do we disentangle effect of carbon tax on emissions from
effect of other environmental policies (State RPS, CA
cap-and-trade, EPA regulation, etc)
Emissions Leakage
Over space and time
Key question: What is the counter-factual?
Hafstead
Retrospective Analysis
5/6
Potential Solutions
Indirect Measures of Impacts on Emissions
Emissions intensity measures
Changes in "new and planned" and "retired" electric generating
units
Fuel efficiency of new cars (made and sold)
Changes in final demand (i.e. commercial, residential, industrial
demand for electricity)
Hafstead
Retrospective Analysis
6/6
Potential Solutions
Indirect Measures of Impacts on Emissions
Emissions intensity measures
Changes in "new and planned" and "retired" electric generating
units
Fuel efficiency of new cars (made and sold)
Changes in final demand (i.e. commercial, residential, industrial
demand for electricity)
Towards proper identification
Diff and Diff studies (to measure causation)
Use regional variation in pre-existing carbon intensities
Focus on non-tradable goods (to avoid leakage issue)
Hafstead
Retrospective Analysis
6/6
Potential Solutions
Indirect Measures of Impacts on Emissions
Emissions intensity measures
Changes in "new and planned" and "retired" electric generating
units
Fuel efficiency of new cars (made and sold)
Changes in final demand (i.e. commercial, residential, industrial
demand for electricity)
Towards proper identification
Diff and Diff studies (to measure causation)
Use regional variation in pre-existing carbon intensities
Focus on non-tradable goods (to avoid leakage issue)
Patience
Hafstead
Retrospective Analysis
6/6