Assessment of CO 2 reduction policies for Switzerland

This report is an effort to document some quantitative results on the possibility of introducing CO2 reduction policies. It concludes that even for an industrialised country with a very efficient energy system that implies high carbon taxes, enough options are available to reduce carbon taxes to acceptable levels and effectively contribute to a sustainable environment. The conclusions of the study are based on analysis done with the model called MARKAL-MACRO. This is a link of MARKAL an engineering bottom-up model together with MACRO, a long-term neo-classical macroeconomic growth model. The model enables us to study general equilibrium issues of energy markets. In addition to the results of the deterministic model that cover cases with pure taxes and a tax-compensation approach, other conclusions are discussed based on stochastic analysis. The study concludes that one of the best short term strategies is to buy greenhouse insurance, starting with "no-regrets", to remove distortions of the energy markets and to introduce voluntary measures, as proposed by the WEC Conference. A complement to a "no-regrets" policy would be to introduce low level and reversible taxes (i.e., the "minimum regrets" option as estimated by the stochastic programming approach). With this, we could gain time to resolve uncertainty, and to select and proceed with better technical choices, since alternative technologies will become available. In the longer term, if the threats are confirmed, efficient policy will be based on tax-compensation policies and international co-operation. Otherwise, if the climate change threats are not confirmed, the low-level taxes can be cancelled without regretting the loss of premature commitments to costly abatement strategies.