What Is the Cost of a Renewable Energy–Based Approach to Greenhouse Gas Mitigation?

Energy policies for greenhouse gas (GHG) mitigation in the United States have set sector-specific standards, such as the Renewable Fuel Standard (RFS) and the Renewable Portfolio Standard (RPS) for the transportation and the electricity sectors, respectively. This paper examines the welfare costs and effectiveness of GHG abatement with these policies and compares them with those under a carbon tax normalized to achieve the same level of abatement over the 2007–2030 period. We show that the global welfare cost per ton of GHG abatement with the RFS and RPS is $171, while with the carbon tax it is $7. (JEL Q42, Q58)