Green House Gas Emissions and the Economic Impacts EU Climate Change Policies

This paper describes the main features of a model developed for fore-casting greenhouse gas emissions in major EU countries and Finland as well as for simulating the economic impacts of EU climate change policies. Energy demand and emissions are determined in the model by economic growth and weather conditions. Output growth especially in the energy intensive industry determines the consumption of electricity and thus a major part of the CO2 emissions in energy production. Air temperature influences household electricity demand for heating and cooling and rain-fall the electricity supply of hydro power plants. The price of electricity plays a cen-tral role in the feedback of emission regulation policy to economic developments and energy consumption as well as in the adjustment of CO2 emissions to allowed caps. Increasing electricity costs and the loss of competitiveness in exports as well as other macroeconomic feedback effects will slow down the growth of output and employ-ment in EU countries. The macroeconomic consequences will be more severe in small open economies like Finland than in the major EU countries.