Return to 1990: The cost of mitigating United States carbon emissions in the post-2000 period

Abstract

The Second Generation Model (SGM) is employed to examine four hypothetical agreements to reduce emissions in Annex 1 nations (OECD nations plus most of the nations of Eastern Europe and the former Soviet Union) to levels in the neighborhood of those which existed in 1990, with obligations taking effect in the year 2010. The authors estimate the cost to the US of complying with such agreements under three distinct conditions: no trading of emissions rights, trading of emissions rights only among Annex 1 nations, and a fully global trading regime. The authors find that the marginal cost of returning to 1990 emissions levels in the US in the absence of trading opportunities is approximately $108 per metric ton carbon in 2010. The total cost in that year is approximately 0.2% of GDP. International trade in emissions permits lowers the cost of achieving any mitigation objective by equalizing the marginal cost of carbon mitigation among countries. For the four mitigation scenarios in this study, economic costs to the US remain below 1% of GDP through at least the year 2020.