Böhringer, Christoph Rutherford, Thomas F. Tol, Richard S.J.
Year of Publication:
ESRI working paper 325
Three computable general equilibrium models are used to estimate the economic implications of a stylized version of EU climate policy. If implemented at the lowest possible cost, the 20% emissions reduction would lead to a welfare loss of 0.5-2.0% by 2020. Second-best policies increase costs. A policy with two carbon prices (one for the ETS, one for the non-ETS) could increase costs by up to 50%. A policy with 28 carbon prices (one for the ETS, one each for each Member State) could increase costs by another 40%. The renewables standard could raise the costs of emissions reduction by 90%. Overall, the inefficiencies in policy lead to a cost that is 100-125% too high. The models differ greatly in the detail of their results. The ETS/non-ETS split may have a negligible impact on welfare, while the renewables standard may even improve welfare. The models agree, however, that the distortions introduced by total EU package imply a substantial welfare loss over and above the costs needed to meet the climate target. The marginal, total and excess costs reported here are notably higher than those in the impact assessment of the European Commission.
climate policy European Union abatement costs renewables target emission reduction target