nep-res New Economics Papers
on Resource Economics
Issue of 2017‒04‒30
two papers chosen by
Maximo Rossi
Universidad de la República

  1. The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through By Sharat Ganapati; Joseph S. Shapiro; Reed Walker
  2. Designing and Updating a US Carbon Tax in an Uncertain World By Aldy, Joseph

  1. By: Sharat Ganapati (Dept. of Economics, Yale University); Joseph S. Shapiro (Cowles Foundation, Yale University); Reed Walker (University of California, Berkeley, IZA, & NBER)
    Abstract: This paper studies how changes in energy input costs for U.S. manufacturers affect the relative welfare of manufacturing producers and consumers (i.e. incidence). In doing so, we develop a partial equilibrium methodology to estimate the incidence of input taxes that can simultaneously account for three determinants of incidence that are typically studied in isolation: incomplete pass-through of input costs, differences in industry competitiveness, and factor substitution amongst inputs used for production. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level unit prices and input choices. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. We combine industry-specific pass-through rates with estimates of industry competitiveness to show that the share of welfare cost borne by consumers is 25-75 percent smaller (and the share borne by producers is correspondingly larger) than models featuring complete pass-through and perfect competition would suggest.
    Keywords: Pass-through, incidence, energy prices, productivity, climate change
    JEL: H22 H23 Q40 Q54
    Date: 2017–04
    URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:2038r2&r=res
  2. By: Aldy, Joseph (Harvard University)
    Abstract: A carbon tax provides certainty about the price of emissions, but it does so in a context characterized by uncertainty about its environmental benefits, economic costs, and international relations implications. Given current knowledge, suppose that the government sets a carbon tax schedule. In the future, a higher (lower) carbon tax could be justified by the resolution of uncertainty along the following ways: climate change turns out to be worse (better) than current projections; the economic costs of a carbon tax are lower (higher) than expected; other major economies implement more (less) ambitious carbon mitigation programs. This paper describes the design of a predictable process for updating the carbon tax in light of new information. Under this "structured discretion" approach, every five years the president would recommend an adjustment to the carbon tax based on analyses by the Environmental Protection Agency, the Department of the Treasury, and the Department of State on the environmental, economic, and diplomatic dimensions of climate policy. Similar to the expedited, streamlined consideration of regulations under the Congressional Review Act and trade deals under trade promotion authority, Congress would vote up or down on the presidential recommendation for a carbon tax adjustment, without the prospect of filibuster or amendment. This process could be synchronized with the timing of updating of nationally determined contributions under the Paris Agreement in a manner to leverage greater emissions mitigation ambition by other countries in future pledging rounds. The communication of guiding information and the latest data and analysis could serve as "forward guidance" for carbon tax adjustments, akin to the Federal Reserve Board's communication strategy.
    Date: 2017–01
    URL: http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp17-001&r=res

This nep-res issue is ©2017 by Maximo Rossi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.