Greenhouse Gas Reductions under Low Carbon Fuel Standards?
- (pp. 106-46)
(Complimentary)
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)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.1.1.106Additional Materials
JEL Classification
- Q54 Climate; Natural Disasters; Global Warming
- Q58 Environmental Economics: Government Policy
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