Effectiveness and equity implications of carbon policies in the United States construction industry

With an increasing American public desire to regulate carbon emissions from stationary and mobile sources, and with more states adopting renewable energy standards and green building codes as an effort toward green environment initiatives, there is an imperative need to evaluate the effectiveness and equity implications of using different mechanisms to reduce carbon emissions in the construction and facility management industry. After all, building construction and operation contributes more than one-third of the carbon emissions in the United States (US). However, the impact of emerging carbon regulatory policies on the construction industry is still unclear. This paper presents a carbon regulation based duopoly model to evaluate the effectiveness and equity of various carbon policies including emission standards, carbon tax, and emissions trading. An empirical analysis of the US housing industry is conducted to illustrate the impacts on the industrial production, emission reduction target, market structure, technology selection, and carbon cost allocation etc. The results encompass emission reduction contributions from large and small firms, the extent of carbon cost burden pass-through to consumers, changes in house price, industry output, and market share. Especially, the analysis shows the market-based mechanisms outperform the emission standards in terms of effectively achieving emission targets while maintaining a stable industrial production. To meet the 17% emission reduction target, a carbon price of $22.3 per metric ton is expected for construction firms. About 54% of carbon cost will be passed through to the end consumers at this carbon price.