The Near-Term Impacts of Carbon Mitigation Policies on Manufacturing Industries

Who will pay for new policies to reduce carbon dioxide and other greenhouse gas emissions in the United States? This paper considers a slice of the question by examining the near-term impact on domestic manufacturing industries of both upstream (economy-wide) and downstream (electric power industry only) carbon mitigation policies. Detailed Census data on the electricity use of four-digit manufacturing industries is combined with input-output information on interindustry purchases to paint a detailed picture of carbon use, including effects on final demand. This approach, which freezes capital and other inputs at current levels and assumes that all costs are passed forward, yields upper-bound estimates of total costs. The results are best viewed as descriptive of the relative burdens within the manufacturing sector rather than as a measure of absolute costs. Overall, the principal conclusion is that within the manufacturing sector (which by definition excludes coal production and electricity generation), only a small number of industries would bear a disproportionate short-term burden of a carbon tax or similar policy. Not surprisingly, an electricity-only policy affects very different manufacturing industries than an economy-wide carbon tax.