September 25, 2011

Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies

by Stephen P. Holland, Jonathan E. Hughes Christopher R. Knittel and Nathan C. Parker

- Instead of efficiently pricing greenhouse gases, policy makers have favored measures that implicitly or explicitly subsidize low carbon fuels. We simulate a transportation-sector cap & trade program (CAT) and three policies currently in use: ethanol subsidies, a renewable fuel standard (RFS), and a low carbon fuel standard (LCFS). Our simulations confirm that the alternatives to CAT are quite costly - 2.5 to 4 times more expensive. We provide evidence that the persistence of these alternatives in spite of their higher costs lies in the political economy of carbon policy.

Holland, S.P., J.E. Hughes, C.R. Knittel and N.C. Parker (2011). "Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies." MIT CEEPR Working Paper No. WP-2011-016, Aug 2011.