State-Level Economic Impacts of a National Climate Change Policy

In response to environmental impacts associated with climate change, policies are being crafted to curb the growth in greenhouse gas (GHG) emissions. European nations are already engaged in reducing emissions through the European Union Emissions Trading System (EU-ETS) as a prelude to implementation of the Kyoto Protocol. In the United States, decision-makers at the national level and a large number of state and local governments are interested in developing domestic policies to address GHG emissions. At the national level, a variety of bills have been proposed, with alternative elements including incentives for carbon capture and storage, renewable energy, automobile standards, and international engagement. A consistent element in most of these proposals is the inclusion of a cap-and-trade system that allows the transfer of permits from firms with low-cost GHG controls to firms with higher costs. Accordingly, this report analyzes as a first step, the potential costs of a moderate national cap-and-trade policy that seeks to stabilize emissions at year 2000 levels. The objective of this paper is to inform the debate about types and magnitude of economic impacts that could be expected both at the national and regional level to illustrate insights into alternative policy options and the potential impacts nationally and explicitly at the state level associated with a modest GHG control policy.