Greenhouse Gas Reduction Policy in the United States: Identifying Winners and Losers in an Expanded Permit Trading System

We present an analysis of the economic impacts of marketable permits for greenhouse gas reduction across industries and income groups in the United States. A computable general equilibrium model is used to simulate permit markets under various assumptions about permit allocations, industry coverage, revenue recycling, sequestration, and the inclusion of multiple greenhouse gases. Our results indicate that a permit price of as much as $128 per ton carbon would be needed to comply with the full U.S. Kyoto commitment, and that this would lead to a slightly more than I percent reduction in GDP in the year 2010. Expansion of trading to include carbon sequestration and methane mitigation can significantly lower these impacts. However, all policy alternatives simulated are somewhat regressive in terms of income distribution, though to significantly different degrees depending on the policy design.