Climate Policy Options: A Comparison of Economic Performance

Abstract

We use a global computable general equilibrium model to compare the economic performance of alternative climate policies along multiple dimensions, including macroeconomic outcomes, energy prices, and trade competitiveness. Carbon pricing which keeps the aggregate cost lower and preserves better the overall competitiveness than across-the-board regulation is the first-best policy, especially in energy intensive and trade exposed industries. Regulations and feebates are good alternatives in the power sector, where technological substitution is possible. Feed-in subsidies, if used alone, are not cost effective.

Keywords: Climate policy, policy coordination, carbon leakage, carbon tax, regulation., climate policy option, Policy stringency, EITE sectors scenario, ambition level, Policy instrument, Greenhouse gas emissions, Non-renewable resources, Global

JEL Classification: F42, H23, Q54, Q58, Q30