Repeal of the Clean Power Plan: Social Cost and Distributional Implications
2022
Khanna, Madhu | Chen, Xiaoguang | Wang, Weiwei | Oliver, Anthony
The Clean Power Plan (CPP) was repealed due to concerns about the “unnecessary, costly burdens” it may impose on electric utilities, thereby delaying efforts to reduce carbon dioxide emissions (CO₂) from the electricity sector. This paper examines the greenhouse gas and welfare implications of this repeal while incorporating the presence of the state renewable portfolio standards (RPS) in the US as the status quo. We assess the carbon abatement and welfare costs with the CPP relative to two alternative baselines: a no‐policy baseline and a pre‐existing policy baseline with the RPS. The CPP is implemented as a regional mass‐based standard, a regional rate‐based standard, or as a national mass‐based standard with trading of emissions across regions over the 2022–2030 period. We find that the incremental discounted welfare costs per metric ton of CO₂ that would have been abated by the CPP relative to the RPS would be substantially lower than the global social cost of CO₂. However, the overall costs of carbon abatement with the CPP added to the RPS would have become higher than the social cost of carbon when estimated relative to a no‐policy baseline, except with a national mass‐based CPP. Across all policy combinations and choice of baselines, the aggregate welfare costs were lowest under a national mass‐based standard and highest under the regional rate‐based standard. We also find that the CPP would have imposed large welfare costs on consumers and fossil fuel producers while benefiting the renewable fuel producers.
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