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Interaction Effects of Market-Based and Command-and-Control Policies

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  • Sugandha D. Tuladhar
  • Sebastian Mankowski
  • Paul Bernstein

Abstract

Scientific evidence indicates that greenhouse gases emissions related to human activity are a significant contributor to global climate change. This paper investigates the impact of policy prescriptions and technologies for reducing U.S. greenhouse gas emissions. The analysis uses NERA’s NewERA integrated model, which combines a top-down general equilibrium macro model of the U.S. economy with a detailed bottom-up model of the North American electricity sector. It examines the cost of cutting emissions by 0% to 80% of 2005 levels by 2050 under several scenarios, which consider different assumptions about policy choices ranging from purely market-based policy such as a cap-and-trade program to purely command-and-control policies and technology involving availability and efficacy of nuclear, Carbon Capture and Storage, renewables, and end-use efficiency technology. Our analysis shows a distinct efficiency advantage for market-based mechanisms and interaction of command-and-control mandates with market-based policies increase market distortions leading to higher welfare loss. We show that under such a mixed policy regime, carbon price is an unsuitable indicator of economic costs.

Suggested Citation

  • Sugandha D. Tuladhar & Sebastian Mankowski & Paul Bernstein, 2014. "Interaction Effects of Market-Based and Command-and-Control Policies," The Energy Journal, , vol. 35(1_suppl), pages 61-88, June.
  • Handle: RePEc:sae:enejou:v:35:y:2014:i:1_suppl:p:61-88
    DOI: 10.5547/01956574.35.SI1.4
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    References listed on IDEAS

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    1. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
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    1. Wu, Shu & Hu, Fangfang & Zhang, Zhijian, 2024. "Visible hand or invisible hand in climate governance? Evidence from China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 204(C).

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