Abstract: We explore economic, distributional and health consequences of U.S. greenhouse gas emissions objectives that could be achieved using Section 115 of the Clean Air Act (international air pollution) which has only recently received detailed legal analysis as a potential U.S. climate policy tool. Under it a national emissions target could be allocated among the states. This illustrative analysis considers 45% and 50% reductions of energy and industry-related CO₂ emissions by 2030, below 2005 levels, via a model rule. Different approaches (based on legal precedent) for the interstate allocation are considered, along with alternative rates of technology improvement.

The detail needed to analyze this approach is provided by MIT’s U.S. Regional Energy Policy (USREP) model (30 individual states and regions), with its electricity sector replaced by the U.S. National Renewable Energy Laboratory’s Renewable Energy Development System (ReEDS). Air quality benefits are estimated using modeling tools developed by academic researchers and the U.S. Environmental Protection Administration.

Three-quarters of emissions reductions in 2030 come in the electric sector, while reductions elsewhere illustrate the efficiency advantage of a multi-sector policy. With all states participating in allowance trading, the resulting national emissions price is lower than in older assessments. The difference is due to lower growth expectations, recent state policies, falling costs of low carbon technologies, and an improved representation of electric system flexibility by the ReEDS model. Even ignoring climate and air quality benefits, economic welfare grows at near the baseline rate for all regions regardless of the interstate allocation approach. When states distribute allowance revenue to residents on an equal per-capita basis the policy is welfare improving to the lowest income quintile in all regions. Aggregation of control costs, the mortality effects of reduced particulates, and the value of avoided climate damages yields positive national net benefits in all cases.