A top–down bottom–up modeling approach to climate change policy analysis

Abstract This paper analyzes macroeconomic impacts of U.S. climate change policies for three different emissions pathways using a top–down bottom–up integrated model. The integrated model couples a technology-rich, bottom–up model of the U.S. electricity sector with a fully dynamic, forward-looking general equilibrium model of the U.S. economy. Our model provides a unique and consistent modeling framework for climate change analysis. Because of the model's detail and flexibility, we use it to examine additional scenarios to analyze many of the major uncertainties surrounding the implementation and impact of climate change policies — the role of command-and-control measures, loss in flexibility mechanisms such as banking, limits on low-emitting technology, and availability of offsets. The results consistently demonstrate that those policies that combine market-oriented abatement incentives with full flexibility are the most cost-effective.