Can Climate Change Mitigation Policy Benefit the Israeli Economy? A Computable General Equilibrium Analysis
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 dividend is possible under a rather standard set of assumptions. Moreover, for higher substitutability between the energy composite input and the labor-capital one, an even “strong” form of double dividend can be obtained. We performed several sensitivity analyses with respect to the modeled production function, which re-confirmed the finding that higher substitution possibilities lead to lower welfare costs 3 associated with a given emission reduction target. We qualify this general result by also showing that the opposite holds when the emission tax rate is held constant, rather than reduced. It may be concluded on the basis of this analysis that a double dividend may be an achievable goal under a GHG emission reduction policy in the case of economies such as Israel. The CGE approach applied in this research is adopted for the first time to the Israeli economy and should contribute to better informed debate on environmental policy in Israel.
|Date of creation:||Jan 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Corso Magenta, 63 - 20123 Milan|
Web page: http://www.feem.it/
More information through EDIRC
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.:
- A. Lans Bovenberg & Lawrence H. Goulder, 1994.
"Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses,"
NBER Working Papers
4897, National Bureau of Economic Research, Inc.
- 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.
- Francesco Daveri & Guido Tabellini, 2000.
"Unemployment, growth and taxation in industrial countries,"
CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
- Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
- Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Wiepke Wissema & Rob Dellink, .
"CGE Analysis of the Impact of a Carbon Energy Tax on the Irish Economy,"
- 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.
- 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.
- John Hutton & Anna Ruocco, 1999. "Tax Reform and Employment in Europe," International Tax and Public Finance, Springer, vol. 6(3), pages 263-287, August.
- 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.
- Harrison, Glenn W & Rutherford, Thomas F & Tarr, David G, 1997. "Quantifying the Uruguay Round," Economic Journal, Royal Economic Society, vol. 107(444), pages 1405-30, September.
When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2008.2. 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: (barbara racah)
If references are entirely missing, you can add them using this form.