Co-emission and welfare effects of electricity policy and market changes: Results from the EMF 32 model intercomparison project

Abstract

From the simulation results of the Energy Modeling Forum's recently completed project on US greenhouse gas emission mitigation policies, this paper estimates and examines welfare effects of carbon dioxide (CO2) pricing policies, fuel and technology cost changes, higher electricity demand growth, and limited nuclear generator lifetimes. Eight of the models in the study reported outputs sufficient to estimate damage from CO2, sulfur dioxide (SO2), nitrogen oxides (NOX), and methane, and three of those eight reported outputs sufficient to calculate consumer surplus, supplier profit, government revenue, and therefore total social surplus. Over approximately thirty years, the four CO2 tax policies reduce emissions enough to reduce estimated CO2 damage by $1 to $1.5 trillion, SO2 damage by $1 to $1.3 trillion, and NOX and methane damage by smaller amounts, based on averaging the results from the relevant models. The estimated non-environmental social surplus cost of each of these policies is between 23% and 29% of its environmental benefit. The CO2 cap-and-trade scenario, modeled after the Clean Power Plan, reduces estimated CO2 damage and other emission damage each by $0.4 trillion, at a non-environmental social surplus cost estimated to be 17% of the environmental benefit. Changing the natural gas price changes SO2 damage more than twice as much as it changes CO2 damage. Estimated methane emissions move in the same direction as CO2 emissions in every scenario other than the low natural gas price scenario, in which the methane increase counteracts an estimated 27% of the benefit from the CO2 reduction but only 5% of the total net benefit. In addition, the paper explains the set of assumptions and methods used to estimate environmental damage, and briefly explains how the non-environmental parts of total social surplus can sometimes be computed from more common results if necessary.