Arndt, Channing Davies, Rob Gabriel, Sherwin Makrelov, Konstantin Merven, Bruno Salie, Faaiqa Thurlow, James
Year of Publication:
WIDER Working Paper 2014/135
We link a bottom-up energy sector model to a recursive dynamic computable general equilibrium model of South Africa in order to examine two of the country's main energy policy considerations: (i) the introduction of a carbon tax and (ii) liberalization of import supply restrictions in order to exploit regional hydropower potential. Our results suggest substantial reductions in the country's greenhouse gas emissions when these two policy changes are jointly implemented (relative to business-as-usual baseline scenario). Moreover, the two policies impose essentially no cost to economic growth, although there is a 1 per cent reduction in employment. From our analysis we conclude that a regional energy strategy, anchored in hydropower, represents a potentially inexpensive approach to reducing emissions in South Africa. Moreover, combining carbon taxes with a removal of import restrictions lessens the burden of adjustment on politically sensitive and economically important sectors.
integrated bottom-up model the integrated MARKAL-EFOM system computable general equilibrium carbon tax South Africa