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GTAP Resource #1197

"The Welfare Costs of Hybrid Carbon Policies in the European Union"
by Babiker, Mustafa, Laurent Viguier, John Reilly, Denny Ellerman and Patrick Criqui

To what extent do the welfare costs associated with the implementation of the Burden Sharing Agreement in the European Union depend on sectoral allocation of emissions rights? What are the prospects for strategic climate policy to favor domestic production? This paper attempts to answer those questions using a CGE model featuring a detailed representation of the European economies. First, numerical simulations show that equalizing marginal abatement costs across domestic sectors greatly reduces the burden of the emissions constraint but also that other allocations may be preferable for some countries because of pre-existing tax distortions. Second, we show that the effect of a single country’s attempt to undertake a strategic policy to limit impacts on its domestic energy-intensive industries has mixed effects. Exempting energy-intensive industries from the reduction program is a costly solution to maintain the international competitiveness of these industries; a tax-cum-subsidy approach is shown to be better than exemption policy to sustain exports. The welfare impact either policy—exemption or subsidy—on other European countries is likely to be small because of general equilibrium effects.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Published
By/In: MIT Joint Program, report No 74
Date: 2001
Created: Viguier, L. (3/24/2003)
Updated: Dimaranan, B. (3/24/2003)
Visits: 1,953
- Climate change policy
- Europe (Western)

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