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Greenhouse Gas Reductions under Low Carbon Fuel Standards?

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Abstract:

A low carbon fuel standard (LCFS) seeks to reduce greenhouse gas emissions by limiting the carbon intensity of fuels. We show this decreases high carbon fuel production but increases low carbon fuel production, possibly increasing net carbon emissions. The LCFS cannot be efficient, and the best LCFS may be nonbinding. We simulate a national LCFS on gasoline and ethanol. For a broad parameter range, emissions decrease, energy prices increase, abatement costs are large ($80–$760 billion annually), and average abatement costs are large ($307–$2,272 per CO2 metric ton). A cost effective policy has much lower average abatement costs ($60–$868).

Document Type: Research Article

DOI: http://dx.doi.org/10.1257/pol.1.1.106

Publication date: February 1, 2009

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  • American Economic Journal: Economic Policy publishes papers covering a range of topics, the common theme being the role of economic policy in economic outcomes. Subject areas include public economics; urban and regional economics; public policy aspects of health, education, welfare and political institutions; law and economics; economic regulation; and environmental and natural resource economics.
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