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Can Climate Change Mitigation Policy Benefit the Israeli Economy? A Computable General Equilibrium Analysis

Listed author(s):
  • Mordechai SHECHTER
  • Ruslana Rachel PALATNIK

The growing attention to global warming due to greenhouse gas (GHG) emissions in the process of fossil fuel--based energy production is expressed in the Kyoto Protocol, which prescribes, on average, a 7 percent reduction in GHG emissions for developed countries. Although Israel was not included in the list of the obligated countries ("Annex A"), it should consider the economic implications of participating in the emission reduction effort, as such a commitment becomes highly feasible following the Bali roadmap which oblige a successor to the Kyoto Protocol to launch negotiations including all parties to the UNFCCC on a future framework, stressing the role of cooperative action and of common though differentiated responsibility. This study aimed to quantify the economy-wide consequences for Israel of meeting the targets of the Kyoto Protocol, employing a Computable General Equilibrium (CGE) model of the Israeli economy. Initially, to this end, we constructed a social accounting matrix (SAM) to serve as a benchmark by combining physical energy and emission data and economic data from various sources. The efficacy of decentralized economic incentives for CO2 emission reduction, such as carbon taxes on emissions and auctioned emission permits, was assessed in terms of their impact on economic welfare. In addition, we tested for the ensuing so-called double dividend. Two distinct cases were analyzed. In the first one, we tested a revenue-neutral environmental policy which proportionally cut pre-existing taxes. Labour supply was assumed to be exogenously fixed. The results showed that, although significant CO2 emission reduction can be achieved, followed by modest economic cost, no double dividend could be discerned. Next, in order to check for the employment double dividend (lower CO2 emissions and lower unemployment), we introduced labor market imperfections, with the aim of cutting income tax. The results of this case indicate that an employment double divide

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Paper provided by EcoMod in its series EcoMod2008 with number 23800132.

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Handle: RePEc:ekd:000238:23800132
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  1. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
  2. Wissema, Wiepke & Dellink, Rob, 2007. "AGE analysis of the impact of a carbon energy tax on the Irish economy," Ecological Economics, Elsevier, vol. 61(4), pages 671-683, March.
  3. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  4. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
  5. Harrison, Glenn W & Rutherford, Thomas F & Tarr, David G, 1997. "Quantifying the Uruguay Round," Economic Journal, Royal Economic Society, vol. 107(444), pages 1405-1430, September.
  6. Kemfert, Claudia, 1998. "Estimated substitution elasticities of a nested CES production function approach for Germany," Energy Economics, Elsevier, vol. 20(3), pages 249-264, June.
  7. John Hutton & Anna Ruocco, 1999. "Tax Reform and Employment in Europe," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 263-287, August.
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