Dynamically estimating the distributional impacts of U.S. climate policy with NEMS: A case study of the Climate Protection Act of 2013

- We analyze the Climate Protection Act of 2013, a fee-and-dividend policy.
- We estimate the distribution of direct energy expenditure impacts by household income.
- Improving on static methods, we model price-induced changes in energy consumption.
- Dynamic results better reflect coal-to-gas switching in the electricity sector.
- To assess total incidence, our results can be combined with others' indirect cost estimates.

We present a new method that enables users of the federal government's flagship energy policy model (NEMS) to dynamically estimate the direct energy expenditure impacts of climate policy across U.S. household incomes and census regions. Our approach combines NEMS output with detailed household expenditure data from the Consumer Expenditure Survey, improving on static methods that assess policy impacts by assuming household energy demand remains unchanged under emissions pricing scenarios. To illustrate our method, we evaluate a recent carbon fee-and-dividend proposal introduced in the U.S. Senate, the Climate Protection Act of 2013 (S. 332). Our analysis indicates this bill, if enacted, would have cut CO2 emissions from energy by 17% below 2005 levels by 2020 at a gross cost of less than 0.5% of GDP, while offering rebates sufficient to offset increased direct energy expenditures for typical households making less than $120,000 per year and average households in all regions of the United States.