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Growth effects of carbon policies: Applying a fully dynamic CGE model with heterogeneous capital

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  • Bretschger, Lucas
  • Ramer, Roger
  • Schwark, Florentine

Abstract

The paper develops a new type of computable general equilibrium (CGE) model in which growth is fully endogenous, based on the increasing specialization of sector-specific capital varieties. The model is used to simulate the effects of carbon policies on consumption, welfare, and sectoral development in the long run. The benchmark scenario is calculated based on endogenous sector-specific gains from specialization, which carry over to the simulations of a carbon policy following the 2°C target. Applying the model to the Swiss economy, we find that carbon policy leads to growth rates of knowledge intensive sectors that are higher than in the benchmark and that all the non-energy sectors show positive growth rates. Compared to a state in which climate change has no negative effect, consumption in 2050 is reduced by 4.5% and entails a moderate but not negligible welfare loss.

Suggested Citation

  • Bretschger, Lucas & Ramer, Roger & Schwark, Florentine, 2011. "Growth effects of carbon policies: Applying a fully dynamic CGE model with heterogeneous capital," Resource and Energy Economics, Elsevier, vol. 33(4), pages 963-980.
  • Handle: RePEc:eee:resene:v:33:y:2011:i:4:p:963-980
    DOI: 10.1016/j.reseneeco.2011.06.004
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    Cited by:

    1. Bretschger, Lucas, 2015. "Energy prices, growth, and the channels in between: Theory and evidence," Resource and Energy Economics, Elsevier, vol. 39(C), pages 29-52.
    2. Mohn, Klaus, 2016. "Undressing the emperor: A critical review of IEA’s WEO," UiS Working Papers in Economics and Finance 2016/6, University of Stavanger.
    3. Guo, Zhengquan & Zhang, Xingping & Zheng, Yuhua & Rao, Rao, 2014. "Exploring the impacts of a carbon tax on the Chinese economy using a CGE model with a detailed disaggregation of energy sectors," Energy Economics, Elsevier, vol. 45(C), pages 455-462.
    4. Bretschger, Lucas & Lechthaler, Filippo & Rausch, Sebastian & Zhang, Lin, 2017. "Knowledge diffusion, endogenous growth, and the costs of global climate policy," European Economic Review, Elsevier, vol. 93(C), pages 47-72.
    5. repec:eee:resene:v:49:y:2017:i:c:p:1-15 is not listed on IDEAS
    6. Anna Sophia Ciesielski & Richard S. J. Tol, 2014. "Carbon Emissions Scenarios in Europe Based on an Endogenous Growth Model," CESifo Working Paper Series 4971, CESifo Group Munich.
    7. Pardo Martínez, Clara Inés, 2013. "An analysis of eco-efficiency in energy use and CO2 emissions in the Swedish service industries," Socio-Economic Planning Sciences, Elsevier, vol. 47(2), pages 120-130.
    8. Lucas Bretschger & Lin Zhang, 2014. "Going beyond tradition: Carbon policy in a high-growth economy: The case of China," CER-ETH Economics working paper series 14/201, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Thepkhun, Panida & Limmeechokchai, Bundit & Fujimori, Shinichiro & Masui, Toshihiko & Shrestha, Ram M., 2013. "Thailand's Low-Carbon Scenario 2050: The AIM/CGE analyses of CO2 mitigation measures," Energy Policy, Elsevier, vol. 62(C), pages 561-572.
    10. Claudio Baccianti & Andreas Löschel, 2014. "The Role of Product and Process Innovation in CGE Models of Environmental Policy," WWWforEurope Working Papers series 68, WWWforEurope.
    11. repec:ces:eeagre:v::y:2012:i::p:01-156 is not listed on IDEAS
    12. Bretschger, Lucas & Zhang, Lin, 2017. "Carbon policy in a high-growth economy: The case of China," Resource and Energy Economics, Elsevier, vol. 47(C), pages 1-19.
    13. Christos Karydas & Lin Zhang, 2017. "Green tax reform, endogenous innovation and the growth dividend," CER-ETH Economics working paper series 17/266, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    14. Frederic Gonand, 2014. "The Social Aversion to Intergenerational Inequality and the Recycling of a Carbon Tax," Working Papers 1412, Chaire Economie du climat.
    15. De Lucia, Caterina & Bartlett, Mark, 2014. "Implementing a biofuel economy in the EU: Lessons from the SUSTOIL project and future perspectives for next generation biofuels," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 22-30.
    16. Bretschger, Lucas, 2015. "Greening Economy, Graying Society," MPRA Paper 66218, University Library of Munich, Germany.
    17. Masoud Yahoo & Jamal Othman, 2017. "Carbon and energy taxation for CO2 mitigation: a CGE model of the Malaysia," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 19(1), pages 239-262, February.
    18. Lucas Bretschger & Roger Ramer, 2012. "Sectoral Growth Effects of Energy Policies in an Increasing-Varieties Model of the Swiss Economy," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(II), pages 137-166, June.
    19. Lars Calmfors & Giancarlo Corsetti & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Ákos Valentinyi & Xavier Vives, 2012. "Chapter 6: Pricing Climate Change," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 131-145, February.
    20. Taran Faehn and Elisabeth T. Isaksen, 2016. "Diffusion of Climate Technologies in the Presence of Commitment Problems," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    21. Lucas Bretschger & Lin Zhang & Roger Ramer, 2012. "Economic effects of a nuclear-phase out policy: A CGE analysis," CER-ETH Economics working paper series 12/167, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

    More about this item

    Keywords

    Carbon policy; CGE models; Energy and endogenous growth; Heterogeneous capital;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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