What Does Europe Pay for Clean Energy? Review of Macroeconomic Simulation Studies

Abstract

This paper analyses the macroeconomic costs of environmental regulation in European energy markets on the basis of existing macroeconomic simulation studies. The analysis comprises the European emission trading scheme, energy taxes, measures in the transport sector, and the promotion of renewable energy sources. We find that these instruments affect the European economy, in particular the energy intensive industries and the industries that produce internationally tradeable goods. From a macroeconomic point of view, however, the costs of environmental regulation appear to be modest. The underlying environmental targets and the efficient design of regulation are key determinants for the cost burden.

Keywords: Environmental regulation, energy market, macroeconomic costs

JEL Classification: Q21, Q28, Q41, Q43, Q48