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American Economic Review Vol. 107 No. 3 2017

Using a Free Permit Rule to Forecast the Marginal Abatement Cost of Proposed Climate Policy

Kyle C. Meng

Bren School and Department of Economics, University of California, Santa Barbara, and NBER (e-mail: )

Abstract

This paper develops a method for forecasting the marginal abatement cost (MAC) of climate policy using three features of the failed Waxman-Markey bill. First, the MAC is revealed by the price of traded permits. Second, the permit price is estimated using a regression discontinuity design (RDD) comparing stock returns of firms on either side of the policy's free permit cutoff rule. Third, because Waxman-Markey was never implemented, I extend the RDD approach to incorporate prediction market prices which normalize estimates by policy realization probabilities. A final bounding analysis recovers a MAC range of $5 to $19 per ton CO 2 e.

DOI
10.1257/aer.20150781
Volume
107
Issue
3
Pages
748-784
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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