March 6, 2011

California Industry Impacts of a Statewide Carbon Pricing Policy with Output-Based Rebates

by Richard D. Morgenstern and Eric Moore

- This study estimates the impacts on a disaggregated set of California industries of introducing a carbon pricing policy within the state. Two time horizons are considered, the "very short run" and the "short run". To limit adverse impacts on the state’s energy-intensive and trade-exposed (EITE) industries, we develop illustrative policy options involving free allowance allocations of emissions permits to particular industries and limited border adjustments on coal, natural gas, crude oil, and refined petroleum product imports, as well as on electricity. Overall, we find relatively small impacts on energy-intensive industries with the rebates in place. The average reduction in EITE output is 0.4 percent.

Morgenstern, R.D. and E. Moore (2011). "California Industry Impacts of a Statewide Carbon Pricing Policy with Output-Based Rebates." RFF Discussion Paper 11-05, Feb 2011.