This paper presents estimates of short run impacts of a carbon price on the electricity industry using a cost-minimizing mathematical model of the U.S. market. Prices of $25 and $50 per ton of carbon dioxide equivalent emissions cause electricity emissions reductions of 17% and 22% from present levels, respectively. This suggests significant electricity sector emissions reductions can be achieved quickly from a modest carbon tax, and diminishing reductions occur when increasing from $25 to $50. The model captures short run effects via operational changes at existing U.S. power plants, mostly by switching production from coal to natural gas. A state-level analysis yields the following conclusions: (1) states which reduce the most emissions are high coal-consumers in the Mid-Atlantic and Midwest regions, (2) 15 states increase emissions after carbon policy because they increase natural gas consumption to offset coal consumption decreases in neighboring states, and (3) a flat per-capita rebate of tax revenue leads to wealth transfers across states.
This is an open access article distributed under the Creative Commons Attribution License
which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited