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Power Sector Analysis

Cap and Trade

EPA’s Economic Modeling for the Power Sector

EPA uses the Integrated Planning Model (IPM) to analyze the projected impact of environmental policies on the electric power sector in the 48 contiguous states and the District of Columbia over a 20 year time horizon. IPM has been used to support EPA’s regulatory efforts in the power sector and was a key analytical tool in developing the Clean Air Interstate Rule (CAIR) finalized in 2005. Currently, IPM is being used in conjunction with economywide models to project impacts of climate change scenarios on the U.S. economy. To look broadly at the impacts of climate change mitigation scenarios, EPA employs computable general equilibrium (CGE) models, which are capable of examining many types of economic, energy, environmental, climate change mitigation, and trade policies at the international, national, U.S. regional, and U.S. state levels. These models combine a consistent theoretical structure with economic data covering all interactions among businesses and households.

EPA’s Economic Analyses for Climate Change

The CGE models used for various analyses do not have detailed technology representations; they are better suited for capturing long-run equilibrium responses than near-term responses. To better capture sectoral impacts and implications of climate policies, other models are used. Since the electricity sector plays a key role in GHG mitigation, and the near-term response in the electricity sector is of particular interest, EPA employs its own version of IPM to shed further light on the near-term impact of various proposals on the electricity sector to complement the broader picture presented by the CGE models.

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