Alarmist.
A Carbon Price Will Reduce Emissions More than Computer Models Predict
How much would a carbon tax reduce U.S. emissions?
The U.S. Energy Information Administration (EIA) found that if the country had set a carbon tax of $25 per ton in 2015 and increased it by 5 percent each year, CO2 emissions would have fallen to 32 percent below 2005 levels by 2030. But new research shows that this may underestimate a carbon price’s true potential.
In our new issue brief, Putting a Price on Carbon: Reducing Emissions, we outline the specific ways a carbon price (meaning either a carbon tax or cap-and-trade program) would encourage emissions reductions by changing the behavior of producers, consumers and investors throughout the economy. We compare these incentives to the corresponding forecasts in EIA’s model, and we find that the model is likely underestimating emissions reductions in important ways.
Models Likely Underestimate Emissions Reductions in the Electricity Sector
Take the electricity sector: A carbon price will increase the cost of electricity in proportion to the carbon content of the fuel, thus encouraging the replacement of high-carbon sources like coal with lower-carbon options like natural gas and renewables. The response of the U.S. electricity grid to price signals is remarkably rapid and strong—the figure below shows how coal usage has correlated with large shifts in natural gas prices in recent years. Computer model forecasts are designed to mimic such historical relationships, so natural gas usage is assumed to increase when a carbon price raises the relative price of coal-fired electricity.
A Carbon Price Will Reduce Emissions More than Computer Models Predict | World Resources Institute
