Modeling the U.S. Climate Agenda: Macro-Climate Trade-offs and Considerations

By Philip Barrett, Katharina Bergant, Jean Chateau, Rui Mano

December 10, 2021

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Philip Barrett, Katharina Bergant, Jean Chateau, and Rui Mano. Modeling the U.S. Climate Agenda: Macro-Climate Trade-offs and Considerations, (USA: International Monetary Fund, 2021) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The run up to the 26th Climate Change Conference has brought tackling climate change to the fore of global policy making. In this context, the U.S. administration has recently unveiled new climate targets. This paper elaborates on the administration’s plans and uses two models developed at the IMF to illustrate key macro-climate trade-offs. First, a model with endogenous fuel-specific technological change shows that subsidies cannot substitute for explicit carbon pricing and that even a moderate carbon tax can greatly economize on the overall fiscal cost of the package. Second, a rich sectoral model shows that there are only very marginal economic costs from front-loading the decarbonization of the power sector but there are large accompanying environmental benefits. Regulations can be effective in the power sector because they provide an appropriate shadow cost to carbon. However, a carbon tax would still be more efficient and easier to administer. Finally, as the economy transitions away from fossil-fueled power generation, there would be a significant reallocation of labor across sectors and locations that would need to be handled carefully to limit the social costs of the transition.

Subject: Carbon tax, Climate change, Climate policy, Environment, Greenhouse gas emissions, Taxes

Keywords: Carbon tax, Climate Agenda, Climate Change, Climate change Conference, Climate policy, Global, Greenhouse gas emissions, Macro-climate trade-off, Power sector, Power sector., Production subsidy, Subsidies

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/290
Stock No:

WPIEA2021290
ISBN:

9781557755964
ISSN:

1018-5941

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