Worked example · Carbon pricing
A $50 price on a tonne of carbon dioxide cuts total combustion emissions 11.3 percent. Stationary sources cut 16.0 percent and transport cuts 2.8, because one can switch fuel at that price and the other largely cannot.
The model is the one that answered the monetary question in the rates example, unchanged.
Every number is a comparison between the economy with the carbon price and the same economy without it. On impact means the first year, before capital has adjusted. After full adjustment means the long-run resting point, once investment has responded. The price and the tax base are imposed by the scenario. Everything else is solved by the model.
The question
If we put a price on carbon, where does the abatement come from, and how much of the reduction is substitution rather than activity moving somewhere we stopped measuring?
The question behind every carbon-pricing designThe answer needs the physical side to be right, which industries burn which fuels and what can substitute for what at what cost, and the economic side to be right, what happens to output, prices, trade and employment once those substitutions are made. GSM8US carries both and solves them together. What the model settles is the size and the composition of the response for a given price and base. What it does not settle is the design: the coverage, the revenue treatment and any border adjustment each move the answer, and a real engagement would specify all three.
How the scenario is built
Biogenic carbon dioxide and the criteria pollutants are held as a memo series outside both the headline and the tax base, as greenhouse-gas accounting requires. The base is stated as a share of the EPA's national total so that coverage is explicit.
The answer
Percent change by source · certified values
Stationary sources bear the cut because they can switch fuels. Transport, at this price, largely cannot.
Stationary abatement deepens as the horizon lengthens, from 16.0 to 16.9 percent, because capital turns over and the cheaper fuel gets built in. Transport abatement shrinks, from 2.8 to 2.1 percent, as the economy adjusts around a cost it cannot substitute its way out of.
The divergence comes from the fuel detail. A model with a single national elasticity would report one number for both.
Transport keeps paying and keeps emitting. Stationary sources stop emitting and therefore stop paying. Any design that assumes a stable revenue base while abatement proceeds is assuming something this model says is false.
What a client receives
The model produces the numbers. The narration layer turns a solved run into a document a policy committee can read, with each figure traceable to the run that produced it.
The tax base is 4,982 million tonnes of carbon-dioxide equivalent in 2024, 92.5 percent of the EPA’s published gross national total for the comparable year. Priced at $50 a tonne it raises approximately $249 billion, roughly 0.86 percent of GDP.
Combustion emissions fall 11.3 percent on impact and 11.7 percent after full adjustment. The composition is the material finding: stationary sources fall 16.0 percent immediately and 16.9 percent in the long run, while transport falls only 2.8 and 2.1 percent respectively. Stationary sources can substitute between fuels at this price. Transport, in the main, cannot.
Why the two paths divergeStationary abatement deepens with time because the capital stock turns over and the substitution is built in permanently. Transport abatement decays because the sector absorbs the cost rather than avoiding it, and activity partially recovers as the rest of the economy adjusts. The implication for revenue is direct: the sectors that keep paying are the sectors that keep emitting.
ReliabilityThe energy accounts behind these figures reconcile to the Energy Information Administration’s published tables fuel by fuel. The final-energy total sits 1.9 percent above the EIA’s end-use figure. The gap is electricity-system losses, which this satellite books as generation fuel. Biogenic carbon dioxide and criteria pollutants are carried as a memo series outside the headline and the tax base.
The fuel accounting
This layer of the model has to agree with measured physical data. It is owned by the Chief Scientist, Energy & Emissions.
The energy satellite is checked against the EIA’s published tables fuel by fuel. It sits 1.9 percent above the end-use total, and the difference is electricity-system losses booked as generation fuel.
The tax base is reported as 92.5 percent of the EPA’s national total rather than as an unqualified tonnage. A reader can see immediately what is and isn’t covered.
Multi-gas accounts are tied to activity and energy source. Biogenic CO₂ and criteria pollutants sit outside the headline and the base, as the accounting standards require.
Limits
From the model documentation.
Your question
A rate rise and a carbon price are not usually answered by the same instrument. Tell us what you have to decide.
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