What is the appropriate role for economics in the development of climate change policy? Ideally, when formulating public policy, decision-makers should rely on expertise from a variety of disciplines, economics among them. Yet economics is often looked upon as the ultimate arbiter of policy choices, because it seems to offer something the other sciences do not: a theoretical framework capable of valuing the consequences of different policy choices with a single metric. This paper argues that this practice is not legitimate, and that most economic policy assessment models, in their current forms, are biased against non-marginal policy changes such as those required to meaningfully address the challenges of climate change.

This report presents a simple pragmatic CGE model with an emphasis on industrial energy use. The purpose of the model is to serve as a tool for the exploration of model structure and assumptions. The motivation for this work was the fact that economic modeling studies influence the debate on the merits of climate change abatement studies and are consulted by policymakers seeking guidance. These studies assess the effectiveness and merits of policy options based on simulations of energy policies with energy-economic models. Policymakers, analysts, stakeholders, and the interested public should understand the strengths and weaknesses of the models and assumptions employed in such studies so that they can use them constructively.

Texas is the nation’s highest energy consumer and its highest emitter of carbon dioxide, and the state’s contribution to global climate stabilization and local environmental quality will require a re-examination of its transportation system. In this study, four alternative scenarios were constructed, reflecting different energy strategies that Texas could pursue to address these issues. These scenarios suggest that only if very aggressive policies are adopted—such as those modeled in the Visionary Scenario—will transport energy use and greenhouse gas emissions in Texas stabilize, let alone decline.