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American Economic Journal: Economic Policy: Vol. 1 No. 1 (February 2009)

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Greenhouse Gas Reductions under Low Carbon Fuel Standards?

Article Citation

Holland, Stephen P., Jonathan E. Hughes, and Christopher R. Knittel. 2009. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?" American Economic Journal: Economic Policy, 1(1): 106-46.

DOI: 10.1257/pol.1.1.106

Abstract

A low carbon fuel standard (LCFS) seeks to reduce greenhouse gas emissions by limiting the carbon intensity of fuels. We show this decreases high carbon fuel production but increases low carbon fuel production, possibly increasing net carbon emissions. The LCFS cannot be efficient, and the best LCFS may be nonbinding. We simulate a national LCFS on gasoline and ethanol. For a broad parameter range, emissions decrease, energy prices increase, abatement costs are large ($80 - $760 billion annually), and average abatement costs are large ($307 - $2,272 per CO2 metric ton). A cost effective policy has much lower average abatement costs ($60 - $868). (JEL Q54, Q58)

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Authors

Holland, Stephen P. (U NC, Greensboro)
Hughes, Jonathan E. (Institute of Transportation Studies, U CA, Davis)
Knittel, Christopher R. (U CA, Davis)

JEL Classifications

Q54: Climate; Natural Disasters; Global Warming
Q58: Environmental Economics: Government Policy

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