On the environmental, economic and budgetary impacts of fossil fuel prices: A dynamic general equilibrium analysis of the Portuguese case
This paper examines the influence of fossil fuel prices on carbon dioxide emissions, economic activity, and the public sector account in Portugal. It uses a dynamic general equilibrium model which highlights the mechanisms of endogenous growth and includes a detailed modeling of the public sector. Fuel price scenarios are based on forecasts by the US Department of Energy (DOE-US), the International Energy Agency (IEA-OECD) and IHS Global Insight Inc. The differences in relative fuel prices among the three scenarios lead to substantially different environmental impacts. Higher fuel prices in the DOE-US scenario lead to a 10.2% reduction in the policy effort required to meet the EU 2020 emission targets, while relative price changes in the IEA-OECD scenario result in a 19.2% increase in the required policy effort and decreasing fuel prices increase the emissions deficit by 95.9% under the IHS scenario. In terms of the long term economic impacts, our results suggest a 2.2% reduction in GDP in the DOE-US scenario and 1.9% in the IEA-OECD scenario and an increase of 1.4% in the IHS scenario. As to the budgetary impact, higher fuel prices lead to lower tax revenues, which, coupled with a reduction in public spending translates to lower public deficits. From a methodological perspective, our results highlight the importance of the mechanisms of endogenous growth. A scenario of higher fuel prices would, under exogenous economic growth assumptions, result in larger baseline emissions growth, substantially smaller economic effects, and rather different budgetary effects. From a policy perspective, our results highlight the importance of fossil fuel prices in defining the level of policy intervention required for compliance with international and domestic climate change legislation.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Don Fullerton & Seung-Rae Kim, 2006.
"Environmental Investment and Policy with Distortionary Taxes and Endogenous Growth,"
NBER Working Papers
12070, National Bureau of Economic Research, Inc.
- Fullerton, Don & Kim, Seung-Rae, 2008. "Environmental investment and policy with distortionary taxes, and endogenous growth," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 141-154, September.
- Carlo Carraro & Enrica De Cian & Massimo Tavoni, 2009.
"Human Capital Formation and Global Warming Mitigation: Evidence from an Integrated Assessment Model,"
CESifo Working Paper Series
2874, CESifo Group Munich.
- Carlo Carraro & Enrica De Cian & Massimo Tavoni, 2009. "Human capital formation and global warming mitigation: evidence from an integrated assessment model," Working Papers 2009_30, Department of Economics, University of Venice "Ca' Foscari".
- Alfredo Marvão Pereira & Rui M. Pereira, 2013. "Environmental Fiscal Reform and Fiscal Consolidation: The Quest for the Third Dividend in Portugal," Working Papers 114, Department of Economics, College of William and Mary.
- James D. Hamilton, 2008.
"Understanding Crude Oil Prices,"
NBER Working Papers
14492, National Bureau of Economic Research, Inc.
- Werner Roeger, 2005. "International oil price changes: impact of oil prices on growth and inflation in the EU/OECD," International Economics and Economic Policy, Springer, vol. 2(1), pages 15-32, 06.
- Schubert, Stefan F. & Turnovsky, Stephen J., 2011. "The impact of oil prices on an oil-importing developing economy," Journal of Development Economics, Elsevier, vol. 94(1), pages 18-29, January.
- Alfredo Marvão Pereira & Rui M. Pereira, 2012. "DGEP - A Dynamic General Equilibrium Model of the Portuguese Economy: Model Documentation," Working Papers 127, Department of Economics, College of William and Mary.
- Mark J. Koetse & Henri L.F. de Groot & Raymond J.G.M. Florax, 2006.
"Capital-Energy Substitution and Shifts in Factor Demand: A Meta-Analysis,"
Tinbergen Institute Discussion Papers
06-061/3, Tinbergen Institute.
- Koetse, Mark J. & de Groot, Henri L.F. & Florax, Raymond J.G.M., 2008. "Capital-energy substitution and shifts in factor demand: A meta-analysis," Energy Economics, Elsevier, vol. 30(5), pages 2236-2251, September.
- Wissema, Wiepke & Dellink, Rob, 2007.
"AGE analysis of the impact of a carbon energy tax on the Irish economy,"
Elsevier, vol. 61(4), pages 671-683, March.
- Wiepke Wissema & Rob Dellink, "undated". "CGE Analysis of the Impact of a Carbon Energy Tax on the Irish Economy," EcoMod2006 272100104, EcoMod.
- Burtraw, Dallas & Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1998.
"The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting,"
dp-98-22, Resources For the Future.
- Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
- Lawrence H. Goulder & Ian W. H. Parry & Roberton C. Williams III & Dallas Burtraw, 1998. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," NBER Working Papers 6464, National Bureau of Economic Research, Inc.
- Brecha, Robert J., 2008. "Emission scenarios in the face of fossil-fuel peaking," Energy Policy, Elsevier, vol. 36(9), pages 3492-3504, September.
- Bovenberg, A.L. & de Mooij, R.A., 1994.
"Environmental tax reform and endogenous growth,"
1994-98, Tilburg University, Center for Economic Research.
- van Ruijven, Bas & van Vuuren, Detlef P., 2009. "Oil and natural gas prices and greenhouse gas emission mitigation," Energy Policy, Elsevier, vol. 37(11), pages 4797-4808, November.
- Jacoby, Henry D. & Reilly, John M. & McFarland, James R. & Paltsev, Sergey, 2006. "Technology and technical change in the MIT EPPA model," Energy Economics, Elsevier, vol. 28(5-6), pages 610-631, November.
- Glomm, Gerhard & Kawaguchi, Daiji & Sepulveda, Facundo, 2008.
"Green taxes and double dividends in a dynamic economy,"
Journal of Policy Modeling,
Elsevier, vol. 30(1), pages 19-32.
- Gerhard Glomm & Daiji Kawaguchi & Facundo Sepulveda, 2006. "Green Taxes and Double Dividends in a Dynamic Economy," Caepr Working Papers 2006-017, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
- Backus, David K. & Crucini, Mario J., 2000.
"Oil prices and the terms of trade,"
Journal of International Economics,
Elsevier, vol. 50(1), pages 185-213, February.
- Gupta, Manash Ranjan & Barman, Trishita Ray, 2009. "Fiscal policies, environmental pollution and economic growth," Economic Modelling, Elsevier, vol. 26(5), pages 1018-1028, September.
- Balcilar, Mehmet & Ozdemir, Zeynel Abidin & Arslanturk, Yalcin, 2010. "Economic growth and energy consumption causal nexus viewed through a bootstrap rolling window," Energy Economics, Elsevier, vol. 32(6), pages 1398-1410, November.
- Parry, Ian W.H. & Goulder, Lawrence H., 2008.
"Instrument Choice in Environmental Policy,"
dp-08-07, Resources For the Future.
- Bergman, Lars, 2005. "CGE Modeling of Environmental Policy and Resource Management," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 24, pages 1273-1306 Elsevier.
- Korhonen, Iikka & Ledyaeva, Svetlana, 2010.
"Trade linkages and macroeconomic effects of the price of oil,"
Elsevier, vol. 32(4), pages 848-856, July.
- Korhonen, Iikka & Ledyaeva, Svetlana, 2008. "Trade linkages and macroeconomic effects of the price of oil," BOFIT Discussion Papers 16/2008, Bank of Finland, Institute for Economies in Transition.
- Alfredo M. Pereira & Pedro G. Rodrigues, 2004. "Strategies for Fiscal Reform in the Context of the EMU: the Case of Portugal," Review of Development Economics, Wiley Blackwell, vol. 8(1), pages 141-163, 02.
- Martinsen, Dag & Krey, Volker & Markewitz, Peter, 2007. "Implications of high energy prices for energy system and emissions--The response from an energy model for Germany," Energy Policy, Elsevier, vol. 35(9), pages 4504-4515, September.
- Nel, Willem P. & Cooper, Christopher J., 2009. "Implications of fossil fuel constraints on economic growth and global warming," Energy Policy, Elsevier, vol. 37(1), pages 166-180, January.
- Pedro Duarte Neves & Paulo Soares Esteves, 2004. "Oil Prices and the Economy," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department, pages -.
- van der Zwaan, B. C. C. & Gerlagh, R. & G. & Klaassen & Schrattenholzer, L., 2002. "Endogenous technological change in climate change modelling," Energy Economics, Elsevier, vol. 24(1), pages 1-19, January.
- Verbruggen, Aviel & Al Marchohi, Mohamed, 2010. "Views on peak oil and its relation to climate change policy," Energy Policy, Elsevier, vol. 38(10), pages 5572-5581, October.
- He, Yanan & Wang, Shouyang & Lai, Kin Keung, 2010. "Global economic activity and crude oil prices: A cointegration analysis," Energy Economics, Elsevier, vol. 32(4), pages 868-876, July.
- Alfred Greiner, 2005. "Fiscal Policy In An Endogenous Growth Model With Public Capital And Pollution," The Japanese Economic Review, Japanese Economic Association, vol. 56(1), pages 67-84.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:42:y:2014:i:c:p:248-261. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.