Cap and Trade and Ohio

1. Cap and Trade and Ohio Tim Haab Professor Agricultural, Environmental and Development Economics haab.1@osu.edu www.env-econ.net

2. Question: What are the Potential Effects of a Carbon Price Increase? • Political momentum for carbon pricing (Cap and Trade) • Approach: Use an integrated engineering/economic model developed by Tim Haab (AED Econ), Bhavik Bakshi (Chemical Engineering) and Prem Goel (Statistics) to predict the sector and state specific effects of an increase in carbon prices. • The model used here is still under development and all results reported here are preliminary.

3. Scenario: A price increase of $.05 per kilogram of Carbon • Equivalent to • $35/ ton of coal • $5/barrel of oil • $27.87/103 m3 of natural gas • Roughly a 25% increase in the price of each at the time of the analysis • Waxman-Markey and Boxer-Kerry set the reserve allowance price at $28/ton or $.028-$.031 per kilogram.

4. The majority of reductions in CO2 will fall on power generation

5. Why should Ohio care?

6. Ohio generated about 13,000,000 megawatt hours electricity in December 2008. Source: US EIA

7. Why should Ohio care? • Ohio generated about 13,000,000 megawatt hours electricity in December 2008. • 99.4% of that is coal-fired (according to EIA).

8. Source: US EIA

9. Why should Ohio care? • Our model predicts that due to the high carbon content of coal, carbon pricing will have large impacts on coal prices and production… • …and manufacturing… • …and transportation and warehousing

10. Preliminary Results: Percentage change in prices due to carbon pricing (by sector)

11. Preliminary Results: Percentage decrease in production due to carbon pricing (by sector—three scenarios)

12. Preliminary Results: Predicted Carbon revenues by sector(millions of dollars)

13. Percentage of GDP in Utilities, Manufacturing and Transportation/Warehousing Source: US BEA

14. Why should Ohio care? • Ohio’s economy is heavily invested in industries likely to be most affected by Carbon prices relative to other states. • Ohio is poorly positioned to adapt to a shift to renewable energy production

15. Source: US EIA

16. A Brief Diversion on Green Jobs • Do climate policy and economic stimulus make for a soggy dinner?

17. A Brief Diversion on Green Jobs • Do climate policy and economic stimulus make for a soggy dinner? • Rob Stavins, Harvard University • “Let’s say I want to have a dinner party. It’s important that I cook dinner, and I’d also like to take a shower before the guests arrive. You might think, Well, it would be really efficient for me to cook dinner in the shower. But it turns out that if I try that I’m not going to get very clean and it’s not going to be a very good dinner.”

18. Cap and Trade and Green Jobs • Climate policy should target climate goals…efficiently. • Stimulus policy should target stimulus…efficiently. • Using climate policy to target stimulus or vice-versa results in bad climate policy and bad stimulus… • …in times of full employment • But what about now?

19. The Takeaway • Preliminary analysis shows that any type of carbon pricing will result in disproportionate economic impacts on states heavily invested in coal-fired electricity generation, manufacturing and transportation and warehousing.  

20. The Takeaway • Ohio is currently underinvested in renewable energy production relative to similar states.

21. The Takeaway • The historic economic reliance of Ohio and similar states on coal based electricity generation, manufacturing and transportation and warehousing means Ohio will disproportionately absorb the economic impacts of carbon pricing.

22. The Takeaway • An open question remains how best to allocate carbon pricing revenues, once collected, to ensure long-term economic sustainability of states disproportionately reliant on carbon intensive production.

23. Thank You • Tim Haab • www.env-econ.net • haab.1@osu.edu