Repeal of the Clean Power Plan: Who Gains and Who Loses?

Madhu Khanna, Xiaoguang Chen, Weiwei Wang, Anthony Oliver

Research output: Contribution to conferencePaperpeer-review

Abstract

The Clean Power Plan (CPP) is being repealed due to concerns about the “unnecessary, costly burdens” it may impose on electric utilities, thereby delaying efforts to reduce carbon dioxide (CO2) from the electricity sector beyond levels incentivized under the status quo state Renewable Portfolio Standards (RPS). This paper examines the welfare implications of this repeal by comparing the gross welfare with and without implementing the CPP as either a regional mass-based standard or a regional rate-based standard over the 2022-2030 period. We also analyze these implications under a national mass-based standard with trading of emissions across regions. We find that the discounted value of the welfare costs to consumers and producers of electricity and fuels for electricity generation under alternative approaches to implement the CPP relative to the RPS alone would range between $38 to $83 billion and would be lowest under a national mass-based standard and highest under the regional rate-based standard. The implied cost per metric ton of CO2 that would have been abated by the CPP would range from $13 to $28 and be substantially lower than the discounted global social cost of CO2 estimated to be about $50 per metric ton. Despite the large net benefits that would have been achieved by implementing the CPP (ranging from $68-$112 billion), there were likely to bepolitical concerns about implementing it because it would impose significant costs on electricity consumers and fossil fuel producers (relative to the status quo RPS) while benefiting the renewable fuel producers only. We conclude that political economy considerations rather than social efficiency explain much of the opposition to the CPP.
Original languageEnglish (US)
Number of pages33
DOIs
StatePublished - Jun 25 2019

Keywords

  • carbon abatement
  • welfare cost
  • electricity sector
  • partial equilibrium model

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