Climate Policy Curves: Linking Policy Choices to Climate Outcomes

The Effect of U.S. Climate Policy on Financial Markets: An Event Study of the Inflation Reduction Act

“…To calibrate the magnitude of the IRA policy action, it is possible in theory to provide a rough estimate of the equivalent carbon price that would be needed to achieve the same emissions reduction. That is, a non-carbon price climate policy can be be translated into an emissions-equivalent shadow carbon price, as described in Hänsel et al (2022). Bistline et al (2023b) estimate that the power sector policies, which account for about 70% of the IRA emissions reductions, may have similar emissions reductions to a U.S. carbon tax of around $12 to $15 per ton of carbon dioxide (CO 2 ).…”

The Effect of U.S. Climate Policy on Financial Markets: An Event Study of the Inflation Reduction Act

“…To calibrate the magnitude of the IRA policy action, it is possible in theory to provide a rough estimate of the equivalent carbon price that would be needed to achieve the same emissions reduction. That is, a non-carbon price climate policy can be be translated into an emissions-equivalent shadow carbon price, as described in Hänsel et al (2022). Bistline et al (2023b) estimate that the power sector policies, which account for about 70% of the IRA emissions reductions, may have similar emissions reductions to a U.S. carbon tax of around $12 to $15 per ton of carbon dioxide (CO 2 ).…”

“…By using an emissions-equivalent shadow carbon price that summarizes various climate policy actions such as subsidies, taxes, and regulation (e.g., Hänsel et al, 2022;NGFS, 2022a), it is possible to provide a broad-brush account of the two key climate policy events. With the election of President Biden and Democratic majorities in both houses of Congress in 2020, there were three broad plausible paths for U.S. climate policy: (1) further minimal incremental action, which would continue a more than decade-long trend of little progress on national climate policy; (2) a break from the past in the form of a moderately significant climate policy initiative; or (3) a very ambitious, wide-ranging policy action along the lines of a "Green New Deal" or the Build Back Better climate legislation.…”