Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?
This chapter explores the distributional impacts of various CO2 abatement policies in the United States in terms of their impacts on profits and equity values for the industries supplying fossil fuels (the coal industry and crude petroleum and natural gas industry) and the industries that rely heavily on fossil fuels as intermediate inputs (for example, petroleum refining and electric utilities). It examines a range of abatement policies, including policies designed to avoid adverse consequences for the regulated industries. It shows that some of the adverse consequences can be avoided through industry-specific corporate tax cuts, direct transfers, and the government's free provision (or “grandfathering”) of emissions permits to firms. The government has to grandfather only a small fraction of tradable pollution permits or exempt a small fraction of inframarginal emissions from a carbon tax to protect the value of capital in industries that are especially vulnerable to impacts from carbon taxes.
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