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Macroeconomic Impacts of the EU 30% GHG Mitigation Target

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  • Francesco Bosello

    (University of Milan, Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Italy)

  • Lorenza Campagnolo

    (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Ca’ Foscari University of Venice, Italy)

  • Carlo Carraro

    (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Ca’ Foscari University of Venice, Italy)

  • Fabio Eboli

    (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Italy)

  • Ramiro Parrado

    (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Italy)

  • Elisa Portale

    (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Italy)

Abstract

The reduction of GHG emissions is one of the most important policy objectives worldwide. Nonetheless, concrete and effective measures to reduce them are hardly implemented. One of the main reasons for this deadlock is the fear that unilateral actions will reduce a country’s competitiveness, and will benefit those countries where no GHG mitigation measures are implemented. This kind of argument is also often used to explain why some governments and many business leaders are not in favour of the EU 30% GHG mitigation target that has been proposed to replace the previous 20% GHG emission reduction objective approved by the EU within the well-known 20-20-20 climate and energy package. By developing and applying a recursive, dynamic, very detailed CGE model with energy generation from both fossil fuel and renewable sources, we address this issue by estimating the cost for different EU countries and industries of the EU climate and energy package under a set of alternative international scenarios on global GHG mitigation efforts. Results show that, thanks to the EU economic recession, achieving a 20% GHG emission reduction entails a moderate cost for the European Union - about 0.5% of EU GDP – even in the case of EU unilateral action. This cost could be reduced to almost zero if not only the European Union, but also the other major world economies, comply with the “low pledge” Copenhagen Accord. A 30% GHG emission reduction target would certainly be more costly: the total loss in the European Union would be 1.26% of EU GDP in the case of EU unilateral action, whereas the total cost would be 0.55% of EU GDP if all major economies reduce their own GHG emissions according to the “low pledge” Copenhagen Accord. Both border tax adjustments and free allocation of carbon permits are shown to be successful in reducing some adverse competitiveness effects of the EU GHG mitigation policy into energy intensive sectors, but at the expenses of the other economic sectors.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.28.

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Date of creation: Mar 2013
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Handle: RePEc:fem:femwpa:2013.28

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Related research

Keywords: EU Climate Package; UNFCCC Conference of Parties; Kyoto Protocol; Computable General Equilibrium Analysis;

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References

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  1. Fabio Eboli & Ramiro Parrado & Roberto Roson, 2009. "Climate Change Feedback on Economic Growth: Explorations with a Dynamic General Equilibrium Model," Working Papers 2009.43, Fondazione Eni Enrico Mattei.
  2. Ottmar Edenhofer & Carlo Carraro & Jean-Charles Hourcade, 2012. "On the economics of decarbonization in an imperfect world," Climatic Change, Springer, vol. 114(1), pages 1-8, September.
  3. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  4. Lars Mathiesen and Ottar Maestad, 2004. "Climate Policy and the Steel Industry: Achieving Global Emission Reductions by an Incomplete Climate Agreement," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 91-114.
  5. Böhringer, Christoph & Balistreri, Edward J. & Rutherford, Thomas F., 2012. "The role of border carbon adjustment in unilateral climate policy: Overview of an Energy Modeling Forum study (EMF 29)," Energy Economics, Elsevier, vol. 34(S2), pages S97-S110.
  6. Peterson, Everett B. & Schleich, Joachim & Duscha, Vicki, 2011. "Environmental and economic effects of the Copenhagen pledges and more ambitious emission reduction targets," Energy Policy, Elsevier, vol. 39(6), pages 3697-3708, June.
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Cited by:
  1. Carlo Carraro & Massimo Tavoni & Thomas Longden & Giacomo Marangoni, 2013. "The Optimal Energy Mix in Power Generation and the Contribution from Natural Gas in Reducing Carbon Emissions to 2030 and Beyond," CESifo Working Paper Series 4432, CESifo Group Munich.
  2. Carlo Orecchia & Ramiro Parrado, 2013. "A Quantitative Assessment of the Implications of Including non-CO2 Emissions in the European ETS," Working Papers 2013.100, Fondazione Eni Enrico Mattei.

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