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Federal Coal Program Reform, the Clean Power Plan, and the Interaction of Upstream and Downstream Climate Policies

Author

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  • Todd Gerarden
  • W. Spencer Reeder
  • James H. Stock
Abstract
Coal mined on federally managed lands accounts for approximately 40% of U.S. coal consumption and 13% of total U.S. energy-related CO2 emissions. The U.S. Department of the Interior is undertaking a programmatic review of federal coal leasing, including the climate effects of burning federal coal. This paper studies the interaction between a specific upstream policy, incorporating a carbon adder into federal coal royalties, and downstream emissions regulation under the Clean Power Plan (CPP). After providing some comparative statics, we present quantitative results from a detailed dynamic model of the power sector, the Integrated Planning Model (IPM). The IPM analysis indicates that, in the absence of the CPP, a royalty adder equal to the social cost of carbon could reduce emissions by roughly 3/4 of the emissions reduction that the CPP is projected to achieve. If instead the CPP is binding, the royalty adder would: reduce the price of tradeable emissions allowances, produce some additional emissions reductions by reducing leakage, and reduce wholesale power prices under a mass-based CPP but increase them under a rate-based CPP. A federal royalty adder increases mining of non-federal coal, but this substitution is limited by a shift to electricity generation by gas and renewables.

Suggested Citation

  • Todd Gerarden & W. Spencer Reeder & James H. Stock, 2016. "Federal Coal Program Reform, the Clean Power Plan, and the Interaction of Upstream and Downstream Climate Policies," NBER Working Papers 22214, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22214
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    References listed on IDEAS

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    1. James B. Bushnell & Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2017. "Strategic Policy Choice in State-Level Regulation: The EPA's Clean Power Plan," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 57-90, May.
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    5. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
    6. Goulder, Lawrence H. & Jacobsen, Mark R. & van Benthem, Arthur A., 2012. "Unintended consequences from nested state and federal regulations: The case of the Pavley greenhouse-gas-per-mile limits," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 187-207.
    7. Bård Harstad, 2012. "Buy Coal! A Case for Supply-Side Environmental Policy," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 77-115.
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    Cited by:

    1. Michael Lazarus & Harro van Asselt, 2018. "Fossil fuel supply and climate policy: exploring the road less taken," Climatic Change, Springer, vol. 150(1), pages 1-13, September.
    2. Grischa Perino & Robert A. Ritz & Arthur van Benthem, 2019. "Overlapping Climate Policies," NBER Working Papers 25643, National Bureau of Economic Research, Inc.
    3. Sun, Wen & Hao, Xinyu & Zhang, Xiaoling, 2024. "Climate policy interactions: Capturing game signals in carbon markets," Renewable and Sustainable Energy Reviews, Elsevier, vol. 198(C).
    4. Bergholt, Drago & Røisland, Øistein & Sveen, Tommy & Torvik, Ragnar, 2023. "Monetary policy when export revenues drop," Journal of International Money and Finance, Elsevier, vol. 137(C).
    5. Brett Watson & Ian Lange & Joshua Linn, 2023. "Coal demand, market forces, and U.S. coal mine closures," Economic Inquiry, Western Economic Association International, vol. 61(1), pages 35-57, January.
    6. Lassi Ahlvik & Jørgen Juel Andersen & Jonas Hveding Hamang & Torfinn Harding, 2022. "Quantifying supply-side climate policies," Working Papers No 01/2022, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    7. Böhringer, Christoph & Rosendahl, Knut Einar, 2022. "Europe beyond coal – An economic and climate impact assessment," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
    8. Kacker, Kanishka & Lange, Ian, 2022. "Inter-regional coal mine competition in the US: Evidence from rail restrictions," Energy Economics, Elsevier, vol. 110(C).
    9. Prest, Brian C. & Stock, James H., 2023. "Climate royalty surcharges," Journal of Environmental Economics and Management, Elsevier, vol. 120(C).
    10. Zhang, Duan & Chen, Yihsu & Tanaka, Makoto, 2018. "On the effectiveness of tradable performance-based standards," Energy Economics, Elsevier, vol. 74(C), pages 456-469.
    11. Kenneth Gillingham & Marten Ovaere & Stephanie Weber, 2021. "Carbon Policy and the Emissions Implications of Electric Vehicles," CESifo Working Paper Series 8974, CESifo.
    12. Peter Erickson & Michael Lazarus, 2018. "Would constraining US fossil fuel production affect global CO2 emissions? A case study of US leasing policy," Climatic Change, Springer, vol. 150(1), pages 29-42, September.
    13. Bielen, David A., 2018. "Do differentiated performance standards help coal? CO2 policy in the U.S. electricity sector," Resource and Energy Economics, Elsevier, vol. 53(C), pages 79-100.
    14. Nathan Ratledge & Laura Zachary & Chase Huntley, 2022. "Emissions from fossil fuels produced on US federal lands and waters present opportunities for climate mitigation," Climatic Change, Springer, vol. 171(1), pages 1-8, March.
    15. Peszko,Grzegorz & Van Der Mensbrugghe,Dominique & Golub,Alexander Alexandrovich, 2020. "Diversification and Cooperation Strategies in a Decarbonizing World," Policy Research Working Paper Series 9315, The World Bank.

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    More about this item

    JEL classification:

    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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