Macroeconomic Impacts of the EU 30% GHG Mitigation Target

24 Pages Posted: 15 Apr 2013 Last revised: 21 May 2013

See all articles by Francesco Bosello

Francesco Bosello

University of Milan - Department of Economics, Business and Statistics; CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Lorenza Campagnolo

Fondazione Eni Enrico Mattei

Carlo Carraro

Ca' Foscari University of Venice; CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division); IPCC; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Centre for European Policy Studies, Brussels; Green Growth Knowledge Platform

Fabio Eboli

Fondazione Eni Enrico Mattei (FEEM); CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Ramiro Parrado

Fondazione Eni Enrico Mattei (FEEM); CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici; Ca Foscari University of Venice - SMCC Phd

Elisa Portale

Università degli Studi di Milano-Bicocca

Date Written: April 15, 2013

Abstract

The reduction of GHG emissions is one of the most important policy objectives worldwide. Nonetheless, concrete and effective measures to reduce them are hardly implemented. One of the main reasons for this deadlock is the fear that unilateral actions will reduce a country’s competitiveness, and will benefit those countries where no GHG mitigation measures are implemented. This kind of argument is also often used to explain why some governments and many business leaders are not in favour of the EU 30% GHG mitigation target that has been proposed to replace the previous 20% GHG emission reduction objective approved by the EU within the well-known 20-20-20 climate and energy package. By developing and applying a recursive, dynamic, very detailed CGE model with energy generation from both fossil fuel and renewable sources, we address this issue by estimating the cost for different EU countries and industries of the EU climate and energy package under a set of alternative international scenarios on global GHG mitigation efforts. Results show that, thanks to the EU economic recession, achieving a 20% GHG emission reduction entails a moderate cost for the European Union – about 0.5% of EU GDP – even in the case of EU unilateral action. This cost could be reduced to almost zero if not only the European Union, but also the other major world economies, comply with the “low pledge” Copenhagen Accord. A 30% GHG emission reduction target would certainly be more costly: the total loss in the European Union would be 1.26% of EU GDP in the case of EU unilateral action, whereas the total cost would be 0.55% of EU GDP if all major economies reduce their own GHG emissions according to the “low pledge” Copenhagen Accord. Both border tax adjustments and free allocation of carbon permits are shown to be successful in reducing some adverse competitiveness effects of the EU GHG mitigation policy into energy intensive sectors, but at the expenses of the other economic sectors.

Keywords: EU Climate Package, UNFCCC Conference of Parties, Kyoto Protocol, Computable General Equilibrium Analysis

JEL Classification: C68, Q43, Q48, Q54

Suggested Citation

Bosello, Francesco and Campagnolo, Lorenza and Carraro, Carlo and Eboli, Fabio and Parrado, Ramiro and Parrado, Ramiro and Portale, Elisa, Macroeconomic Impacts of the EU 30% GHG Mitigation Target (April 15, 2013). FEEM Working Paper No. 28.2013, CMCC Research Paper No. 0173 , Available at SSRN: https://ssrn.com/abstract=2251150 or http://dx.doi.org/10.2139/ssrn.2251150

Francesco Bosello (Contact Author)

University of Milan - Department of Economics, Business and Statistics

Via Festa del Perdono, 7
Milan, 20122
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

via Augusto Imperatore, 16
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Italy

Lorenza Campagnolo

Fondazione Eni Enrico Mattei ( email )

C.so Magenta 63
Milano, 20123
Italy

Carlo Carraro

Ca' Foscari University of Venice ( email )

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Venice, 30121
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HOME PAGE: http://www.carlocarraro.org/

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IPCC ( email )

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United Kingdom

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Germany

Centre for European Policy Studies, Brussels

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Green Growth Knowledge Platform ( email )

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HOME PAGE: http://www.greengrowthknowledge.org/

Fabio Eboli

Fondazione Eni Enrico Mattei (FEEM) ( email )

Corso Magenta 63
20123 Milan
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Ramiro Parrado

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Fondazione Eni Enrico Mattei (FEEM) ( email )

Isola di San Giorgio Maggiore
Venezia, VE 30124
Italy

Ca Foscari University of Venice - SMCC Phd ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Elisa Portale

Università degli Studi di Milano-Bicocca ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, Milan 20126
Italy

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