- School of Public Policy
- Climate and Energy Policy Laboratory
- Carbon Pricing and Energy Efficiency: Pathways to Deep Decarbonization of the U.S. Electric Sector
Date: May 2018
Despite the commitment of the Paris agreement to pursue efforts to limit end-of-century global warming to 1.5°C above pre-industrial levels, few have studied mitigation pathways consistent with such a demanding goal. This paper uses a fully integrated engineering-economic model of the U.S. energy system, to explore the ability of the U.S. electricity sector to operate within a budget of 44 gigatons of CO2 (GtCO2) between 2016 and 2040 - almost 20 percent less than projected. Our modeling results suggest that carbon taxes coupled with strong energy-efficiency policies would produce synergistic effects that could meet deep decarbonization goals. Combining energy-efficiency initiatives with a $10/tCO2 tax rising to $27/tCO2 in 2040 (in $2013) would achieve the U.S. electric sector's carbon budget with a net savings to the U.S. economy. A $20/tCO2 tax rising to $53/tCO2 in 2040 would also stay below this budget, but it would cost more if not coupled with strong energy efficiency. U.S. regions will win or lose depending on their generation mix and how carbon tax revenues are recycled.