Carnegie Mellon University

CO2 Emissions

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Paying the Price

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Carnegie Mellon researchers have recently provided the clearest picture yet of the possible short-term effects that would result from a mandatory price for carbon dioxide emissions (CO2).

The research, published recently by Environmental Science & Technology, suggests that even a modest price would — almost immediately — result in up to 10 percent reductions in emission levels by prompting changes in both power company investments and consumer behavior.

By using data from 2006 on the impact of a price on CO2 emissions from the existing fleet of U.S. power plants in three regions, the researchers identified that a price as low as $35 per metric ton of CO2 would likely cause a reduction of consumer electricity use. Taking that a step further, they concluded there would also be a change by grid operators in the order in which generators are economically dispatched, depending on their emission levels and marginal fuel prices.

Northeast and Midwest states would see a higher drop in emissions resulting from the price, according to the study, while emissions in Texas — which has relatively larger numbers of natural gas facilities — would be affected significantly less.

While this study predicts the impact and demand elasticity for an instantaneous price increase, the researchers believe that any price imposed will likely be phased in gradually or be done via a cap-and-trade system.

"Any price structure for emissions would hopefully have a clear timetable that would allow utilities and consumers to make informed investment decisions," said M. Granger Morgan, Lord Chair Professor in Engineering in the Department of Engineering and Public Policy at Carnegie Mellon. "In addition to the changes in resource allocation by utilities, consumers would pay more attention to their energy consumption or switch to more energy efficient appliances."

The study supports and expands on prior research about how a CO2 emissions price would spur greater investment by power generators in new, more efficient technologies.

"Our findings indicate that significant reductions in CO2 can and would be observed in the near-term, even before more efficient power generation technologies are deployed on a wide scale," said Jay Apt, associate research professor at the Tepper School of Business at Carnegie Mellon and co-author of the study.

The study, titled "Short Run Effects of a Price on Carbon Dioxide Emissions from U.S. Electric Generators," appeared in the May 1st issue of Environmental Science & Technology. The research was by Adam Newcomer, a Ph.D. candidate in the department of Engineering and Public Policy; along with Professors Apt and Morgan, Professor Lester B. Lave of the Tepper School of Business at Carnegie Mellon; and Professor Seth Blumsack of Penn State University.

The research was supported by the Carnegie Mellon Electricity Industry Center, established in August 2001 to work with industry, government and other stakeholders to address the strategic problems of the electricity industry, making it more competitive and its systems more reliable.

Related Links: Electricity Industry Center  |  Engineering & Public Policy  |  Tepper School of Business