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Author:Novan, Kevin 

Journal Article
The Economy’s Response to Potential Climate Policy

Uncertainty about U.S. climate policy in the future creates risk that affects the investment decisions businesses make today. If firms expect future policy to raise the cost of carbon emissions, then they could react to this by both shifting investment towards cleaner capital and reducing overall investment. These two responses lead to lower emissions, even if no actual climate policy is in place. Evidence suggests that this risk encourages companies to voluntarily reduce emissions using internal carbon prices and other mechanisms.
FRBSF Economic Letter , Volume 2021 , Issue 16 , Pages 01-05

Working Paper
The Macro Effects of Climate Policy Uncertainty

Uncertainty surrounding if and when the U.S. government will implement a federal climate policy introduces risk into the decision to invest in capital used in conjunction with fossil fuels. To quantify the macroeconomic impacts of this climate policy risk, we develop a dynamic, general equilibrium model that incorporates beliefs about future climate policy. We find that climate policy risk reduces carbon emissions by causing the capital stock to shrink and become relatively cleaner. Our results reveal, however, that a carbon tax could achieve the same reduction in emissions at less than half ...
Finance and Economics Discussion Series , Paper 2021-018

Working Paper
Recycling Carbon Tax Revenue to Maximize Welfare

This paper explores how to recycle carbon tax revenue back to households to maximize welfare. Using a general equilibrium lifecycle model calibrated to reflect the heterogeneity in the U.S. economy, we find the optimal policy uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while the remaining one third is used to increase the progressivity of the labor-income tax. The optimal policy attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists -- which ...
Finance and Economics Discussion Series , Paper 2021-023

Working Paper
The Distributional Effects of a Carbon Tax on Current and Future Generations

This paper examines the non-environmental welfare effects of introducing a revenue- neutral carbon tax policy. Using a life cycle model, we find that the welfare effects of the policy differ substantially for agents who are alive when the policy is enacted compared to those who are born into the new steady state with the carbon tax in place. Consistent with previous studies, we demonstrate that, for those born in the new steady state, the welfare costs are always lower when the carbon tax revenue is used to reduce an existing distortionary tax as opposed to being returned in the form of ...
Finance and Economics Discussion Series , Paper 2016-038

Working Paper
Climate Policy Transition Risk and the Macroeconomy

Uncertainty surrounding if the U.S. will implement a federal climate policy introduces risk into the decision to invest in long-lived capital assets, particularly those designed to use, or to replace fossil fuel. We develop a dynamic, general equilibrium model to quantify the macroeconomic impacts of this climate policy transition risk. The model incorporates beliefs over the likelihood that the government adopts a climate policy causing the economy to dynamically transition to a lower carbon steady state. We find that climate policy transition risk decreases carbon emissions today by causing ...
Working Paper Series , Paper 2021-06

Discussion Paper
The Green Dividend Dilemma: Carbon Dividends Versus Double-Dividends

By raising the price of carbon-emitting energy sources, a carbon tax would flexibly incentivize households and businesses to reduce fossil fuel consumption and substitute towards cleaner energy sources. A carbon tax would also generate a substantial stream of government revenue. This raises an important question – how should this revenue be used? In this note, we summarize findings from our recent research (Fried et al. (2018)) that examine this question.
FEDS Notes , Paper 2019-03-08


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