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THE IMPACTS OF GREENHOUSE GAS MITIGATION POLICY OPTIONS
ON THE PENNSYLVANIA STATE ECONOMY
Adam Rose, University of Southern California, Phone +1 213 740 8022, E-mail: [email protected]
Dan Wei, University of Southern California, Phone +1 213 740 0034, E-mail: [email protected]
Noah Dormady, University of Southern California, E-mail: [email protected]
Overview
The Pennsylvania Climate Change Act (Act 70) was signed into law in 2008. The Climate Change Advisory
Committee (CCAC) was established after the passage of the bill to facilitate the development of the Pennsylvania
Climate Action Plan (PA CAP) in cooperation with the Pennsylvania Department of Environment Protection (PA
DEP). The greenhouse gas (GHG) emissions reduction goal adopted by the CCAC is 30% below the Year 2000
emission levels by Year 2020. The PA CAP, released in October 2009, specified a broad set of mitigation policy
options (called “work plans”) covering a wide range of economic sectors. All of the cost estimates for the mitigation
work plans presented in the PA CAP apply to the site of their application, or what are termed partial equilibrium
economic impacts, but do not include broader general equilibrium or macroeconomic impacts. This paper refines the
REMI Policy Insight Plus Model, the most widely used macroeconometric model, to analyze impacts of the 42 work
plans in the PA CAP on Pennsylvania Gross State Product, personal income and employment. The study carefully
links microeconomic parameters of individual work plans to the workings of the Pennsyvania economy with the use
of the REMI Model. In addition, a reduced form analysis is performed by regressing macro impacts on major
explanatory variables.
This paper is divided into six sections. Following a background section, Section 2 summarizes the workings of the
REMI Model. In Section 3 an overview is presented of how we translate technical analyses of mitigation work plans
into REMI simulation policy variables, including the additional assumptions adopted to further refine the micro level
results. Section 4 presents the simulation results of individual work plans. Section 5 presents the regression analyses
results. In the final section, some policy implications are provided.
Methods
Regional Economic Models, Inc. (REMI) Policy Insight Plus (PI +) Model. Ordianry least squares and quantile
regression analyses.
Results
The results indicate that the majority of GHG mitigation or sequestration work plans recommended in PA CAP
generates a net positive gain in both GSP and employment. In aggregate, by Year 2020, the combination of the 42
work plans can result in an increase in GSP of $2.1 billion, or a 0.31% increase from baseline level. The
employment gains are projected to be 38,800, or an increase of 0.52% from baseline level. The multivariate
regression analysis reuslts indicate that the macroeconomic impacts of the work plans from the REMI model are
highly robust when one controls for investment and consumption characteristics.
Conclusions
This paper analyzes the impacts of the PA CAP on the Pennsylvania State economy. The macroeconomic modeling
results indicate that, the majority of the GHG mitigation/sequestration work plans recommended in PA CAP
generates positive impacts on the state’s economy individually. The economic gains arise primarily from the ability
of mitigation work plans to lower the cost of production and to increase consumer purchasing power through energy
savings. The results also stem from the stimulus of increased investment in plant and equipment. The regression
analysis results represent a strong validation of the application of the REMI Model to the analysis in this paper.
References
Regional Economic Models, Inc. (REMI). 2009. Pennsylvania State REMI Model.
Pennsylvania Department of Environmental Protection (PA DEP). 2009. Pennsylvania Final Climate Change
Action Plan. http://www.elibrary.dep.state.pa.us/dsweb/View/Collection-10677.
Rose, A. and Dormady, N. 2011. “A Meta-Analysis of the Economic Impacts of Climate Change Policy in the
United States,” The Energy Journal 32(2): 143-166.
Rose, A. and Wei, D. 2011. “Macroeconomic Impacts of the Florida Energy and Climate Change Action Plan,”
Climate Policy, forthcoming.
Rose, A., Wei, D., and Dormady, N. 2011. “Regional Macroeconomic Assessment of the Pennsylvania Climate
Action Plan”, Regional Science Policy and Practice, forthcoming.
Treyz, G. 1993. Regional Economic Modeling: A Systematic Approach to Economic Forecasting and Policy
Analysis. Boston: Kluwer.