The Economics of Decarbonization in the U.S.

Released in November 2014, the “Pathways to Deep Decarbonization in the United States” report by the Energy + Environmental Economics (E3) analyzes various technological scenarios for the U.S. to achieve 80 percent reduction from 1990 levels in greenhouse gas (GHG) emissions by 2050. The report finds several technological pathways that are feasible given today’s technology but questions remain regarding their economic feasibility.

One year later, ICF International released “Economic Analysis of U.S. Decarbonization Pathways” study, which uses outputs from the E3 report to analyze the potential economic impacts of the proposed decarbonization scenarios. This study, produced for NextGen Climate America, Inc., analyzes the overall economic impacts in terms of jobs and economic output, as well as the distributional impacts on different industrial sectors, households, and regions across the country.

ICF used the Policy Insight Plus model, a macroeconomic model of the economy developed by the Regional Economic Models, Inc. (REMI). Data used in the study came from E3’s estimates of required capital investments, energy cost changes, and energy use changes. The model and input data cover the nine Census regions of the U.S. (New England, Middle Atlantic, South Atlantic, East North Central, East South Central, West North Central, West South Central, Mountain, and Pacific).

The study finds that deep decarbonization of the US economy has a net positive impact on the overall economy in terms of jobs, GDP, and income per household. Under different scenarios, the economy could add more than a million jobs by 2030 and up to 2 million jobs by 2050. Certain economic sectors are assumed to be big beneficiaries of these job gains, including construction and the manufacturing sectors that are likely to contribute the parts, equipment, and final goods for the technologies of deep decarbonization.

While the overall economic benefits outweigh the costs, some sectors and regions, which rely heavily on fossil-fuel based energy and industries, could face job losses due to decarbonization. Regions that face job losses, however, are likely to see increases in disposable income per household, which are estimated to be higher across all regions under these decarbonization scenarios.