Two Recent Studies of Regional Differences in the Effects of Policies That Would Price Carbon Dioxide Emissions

This Congressional Budget Office document dated July 9, 2009 reports that two teams of experts—one affiliated with the National Bureau of Economic Research (NBER) and one affiliated with Resources for the Future (RFF)—have estimated regional differences in the effects of policies that would increase the prices of fossil fuels in rough proportion to the carbon dioxide (CO2) emitted when they are combusted, as would occur under a cap-and-trade program.

NBER’s analysis finds relatively small differences in the effect on households across
regions of the country (see Figure 1). In the analysis, increased expenditures account for the largest share of average household income (1.9 percent) in the East South Central region and the smallest share (1.5 percent) in the West North Central region. Most of the regional differences stem from differences in the amount of energy that households consume directly (such as gasoline, electricity, natural gas, and home heating oil) rather than indirectly (such as fossil fuels used in the production of food, clothing, and other items).

An analysis by RFF examines the effects of an emission price of $20.91 per metric
ton of CO2 using households’ expenditure patterns and income levels in 2006.2 The
analysis accounts for both regional variation in the consumption of goods and services and regional differences in the amount by which electricity prices would increase as a consequence of the policy. Using a model that incorporates changes in the supply of and demand for electricity, RFF estimates that the price of electricity would increase by as little as 7 percent in California and by as much as 27 percent in the Ohio Valley.