http://hdl.handle.net/1721.1/34009 http://dspace.mit.edu:80/retrieve/271382 http://hdl.handle.net/1721.1/34009 http://hdl.handle.net/1721.1/45667 The Cost of Climate Policy in the United States Morris, Jennifer F. Jacoby, Henry D. Reilly, John M. Paltsev, Sergey We consider the cost of meeting emissions reduction targets consistent with a G8 proposal of a 50 percent global reduction in emissions by 2050, and an Obama Administration proposal of an 80 percent reduction over this period. We apply the MIT Emissions Prediction and Policy Analysis (EPPA), modeling these two policy scenarios if met by applying a national cap-and-trade system, and compare results with an earlier EPPA analysis of reductions of this stringency. We also test results to alternative assumptions about program coverage, banking behavior, and cost of technology in the electric power sector. Two main messages emerge from the exercise. First, technology uncertainties have a huge effect on the generation mix but only a moderate effect on the emissions price and welfare cost of achieving the assumed targets. Measured in terms of changes in economic welfare, the economic cost of 80 percent reduction by 2050 is in the range of 2 to 3% by 2050, with CO2 prices between $48 and $67 in 2015 rising to between $190 and $266 by 2050. Second, implementation matters. When an idealized economy-wide cap-and-trade is replaced by coverage omitting some sectors, or if the credibility of long-term target is weak (limiting banking behavior) prices and welfare costs change substantially. http://hdl.handle.net/1721.1/45666 Update on the Cost of Nuclear Power Parsons, John E. Du, Yangbo We update the cost of nuclear power as calculated in the MIT (2003) Future of Nuclear Power study. Our main focus is on the changing cost of construction of new plants. The MIT (2003) study provided useful data on the cost of then recent builds in Japan and the Republic of Korea. We provide similar data on later builds in Japan and the Republic of Korea as well as a careful analysis of the forecasted costs on some recently proposed plants in the US. Using the updated cost of construction, we calculate a levelized cost of electricity from nuclear power. We also update the cost of electricity from coal- and gas-fired power plants and compare the levelized costs of nuclear, coal and gas. The results show that the cost of constructing a nuclear plant have approximately doubled. The cost of constructing coal-fired plants has also increased, although perhaps just as importantly, the cost of the coal itself spiked dramatically, too. Capital costs are a much smaller fraction of the cost of electricity from gas, so it is the recent spike in the price of natural gas that have contributed to the increased cost of electricity. These results document changing prices leading up to the current economic and financial crisis, and do not incorporate how this crisis may be currently affecting prices. http://hdl.handle.net/1721.1/45665 On Coase and Hotelling Montero, Juan-Pablo Liski, Matti It has been long recognized that an exhaustible-resource monopsonist faces a commitment problem similar to that of a durable-good monopolist. Indeed, Hörner and Kamien (2004) demonstrate that the two problems are formally equivalent under full commitment. We show that there is no such equivalence in the absence of commitment. The existence of a choke price at which the monopsonist adopts the substitute (backstop) supply divides the surplus between the buyer and the sellers in a way that is unique to the resource model. Sellers receive a surplus share independently of their cost heterogeneity; a result in sharp contrast with the durable-good monopoly logic. The resource buyer can distort the equilibrium through delayed purchases, but the Coase conjecture arises under extreme patience (zero discount rate). http://hdl.handle.net/1721.1/45664 Designing a US Market for CO2 Ellerman, A. Denny Parsons, John E. In this paper we focus on one component of the cap-and-trade system: the markets that arise for trading allowances after they have been allocated or auctioned. The efficient functioning of the market is key to the success of cap-and-trade as a system. We review the performance of the EU CO2 market and the US SO2 market and examine how the flexibility afforded by banking and borrowing and the limitations on banking and borrowing have impacted the evolution of price in both markets. While both markets have generally functioned well, certain episodes illustrate the importance of designing the rules to encourage liquidity in the market.