Exploring the Cost of Decarbonizing the United States: A Proposal for a Green Sacrifice Ratio

In line with global warming, decarbonization of economies is a much-discussed topic in climate policies and economic forecasts. However, estimating the output cost of decarbonizing economies has not received attention. Therefore, this study examines the costs of decarbonization in the USA, the leading country in the global economy, by proposing a “Green Sacrifice Ratio” based on estimating the output costs of emission abatement policy. To do this, the study employs Structural Vector Autoregression analysis to measure the Green Sacrifice Ratio in the USA from 1973/Q1 to 2023/Q2. The empirical results show that a permanent 1% reduction in carbon emissions results in a cumulative loss of 0.0001% of output in the USA. The implication is that the cost of decarbonization in the USA can be lower than the economic burden of environmental pollution. Therefore, policymakers in the USA should take determined actions to prevent irreversible environmental degradation and avoid heavy economic costs in the future.