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GHG mitigation schemes and energy policies: A model-based assessment for the Italian economy

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  • Annicchiarico, Barbara
  • Battles, Susan
  • Di Dio, Fabio
  • Molina, Pierfrancesco
  • Zoppoli, Pietro

Abstract

We build up a large scale dynamic general equilibrium model embodying a cap on pollutant emissions, an electricity sector and fuel consumption to analyse climate-energy policies for the Italian economy. Our results show how the trade-off between environmental quality and economic activity can be effectively overcome by recycling the revenues from the sales of emission permits in labour tax reductions. A tax combination aimed at reducing the consumption of fossil fuel, while simultaneously decreasing taxes on labour, is expansionary, but the final outcome is influenced by the underlying GHG emission policy. Tax incentives encouraging the use of clean energy sources, by discouraging the use of fossil fuel, produce a sizeable reallocation of emissions across sectors and are found to be expansionary. Overall the paper highlights the non-trivial interactions between the different fiscal tools in hand to meet the legally binding commitment on emission reduction, while limiting the potential negative fallout on the economy.

Suggested Citation

  • Annicchiarico, Barbara & Battles, Susan & Di Dio, Fabio & Molina, Pierfrancesco & Zoppoli, Pietro, 2017. "GHG mitigation schemes and energy policies: A model-based assessment for the Italian economy," Economic Modelling, Elsevier, vol. 61(C), pages 495-509.
  • Handle: RePEc:eee:ecmode:v:61:y:2017:i:c:p:495-509
    DOI: 10.1016/j.econmod.2016.12.028
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    References listed on IDEAS

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    Cited by:

    1. Barbara Annicchiarico & Francesca Diluiso, 2017. "International Transmission of the Business Cycle and Environmental Policy," CEIS Research Paper 423, Tor Vergata University, CEIS, revised 19 Dec 2017.

    More about this item

    Keywords

    Environmental policy; GHG emissions; Energy policies; Dynamic general equilibrium model; Simulation analysis; Italy;

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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