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A Cost-Benefit Analysis of the EU 20/20/2020 Package

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  • Tol, Richard S. J.

Abstract

The European Commission did not publish a cost-benefit analysis for its 2020 climate package. This paper fills that gap, comparing the marginal costs and benefits of greenhouse gas emission reduction. The uncertainty about the marginal costs of climate change is large and skewed, and estimates partly reflect ethical choices (e.g., the discount rate). The 2010 carbon price in the ETS can readily be justified by a cost-benefit analysis. Emission reduction is not expensive provided that policy is well-designed, a condition not met by planned EU policy. It is probably twice as expensive as needed, costing one in ten years of economic growth. The EU targets for 2020 are unlikely to meet the benefit-cost test. For a standard discount rate, the benefit-cost ratio is rather poor (1/30). Only a very low discount rate would justify the 20% emission reduction target for 2020.

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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP367.

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Date of creation: Jan 2011
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Handle: RePEc:esr:wpaper:wp367

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Keywords: cost-benefit analysis/cost/Greenhouse Gas emission reduction/uncertainty/Climate change/Policy/growth/emission reduction target;

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Cited by:
  1. Gorecki, Paul K. & Tol, Richard S. J., 2011. "The Climate Change Response Bill 2010: An Assessment," Papers WP371, Economic and Social Research Institute (ESRI).
  2. Gawel, Erik & Strunz, Sebastian & Lehmann, Paul, 2013. "A public choice view on the climate and energy policy mix in the EU: How do the emissions trading scheme and support for renewable energies interact?," UFZ Discussion Papers 5/2013, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
  3. Anthoff, David & Rose, Steven K. & Tol, Richard S. J. & Waldhoff, Stephanie, 2011. "Regional and Sectoral Estimates of the Social Cost of Carbon: An Application of FUND," Papers WP375, Economic and Social Research Institute (ESRI).
  4. Kanellakis, M. & Martinopoulos, G. & Zachariadis, T., 2013. "European energy policy—A review," Energy Policy, Elsevier, vol. 62(C), pages 1020-1030.
  5. Eliasson , Jonas & Proost, Stef, 2014. "Is sustainable transport policy sustainable?," Working papers in Transport Economics 2014:2, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
  6. Devitt, Conor & Diffney, Seán & FitzGerald, John & Malaguzzi Valeri, Laura & Tuohy, Aidan, 2011. "Goldilocks and the Three Electricity Prices: Are Irish Prices "Just Right"?," Papers WP372, Economic and Social Research Institute (ESRI).

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