Estimating bounds on the economy-wide effects of the CEF policy scenarios

The Scenarios for a Clean Energy Future study relied primarily on “bottom-up” technology-based methods to estimate costs associated with its scenarios. These methods, however, do not allow for calculation of economy-wide or general equilibrium effects of the policies considered. We propose and apply a means of combining the bottom-up estimates with estimates of the costs associated with a carbon charge obtained from computable general equilibrium models. Our approach is based on the concept of production inefficiency: the economy lies within its production frontier with respect to the provision of energy services. The CEF technology policies are interpreted as moving the economy toward its frontier as well as moving the frontier outward, while the carbon charge induces a substitution effect along the frontier. This perspective allows a synthesis of the two sets of calculations.