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Special issue: Costs of reducing CO2 emissions
Costs of reducing CO2 emissions: evidence from six global models
Andrew Dean and Peter Hoeller
This paper summarises and analyses results of the OECD's Model Comparisons Project. The aim of the project is to better understand differences across six global models in the cost of reducing carbon dioxide emissions. In order to facilitate comparisons, key assumptions and reduction targets have been standardised. The paper provides evidence on : i) projected carbon dioxide emissions through the next century; and ii) the carbon taxes and output costs entailed in reducing these emissions.
GREEN: a global model for quantifying the costs of policies to curb CO2 emissions
Jean-Marc Burniaux, Giuseppe Nicoletti and Joaquim Oliveira Martins
By modeling the decisions of households and firms, applied general equilibrium (AGE) models are able to capture the economic mechanisms that link, in each period of time, the available resource base to man-made emissions of CO2. The OECD Economics Department has developed a global dynamic AGE model with the objective of quantifying the economic effects of policies aimed at reducing emissions of CO2 in the atmosphere. The project is called the GeneRal Equilibrium ENvironmental model, hereafter referred to as GREEN. This paper provides a non-technical overview of the GREEN model specification, parameterisation and calibration. As such, it is a complement to the other papers on GREEN in this volume that report the results of various policy-relevant simulations with the model.
The costs of international agreements to reduce CO2 emissions: evidence from GREEN
John P. Martin, Jean-Marc Burniaux, Giuseppe Nicoletti and Joaquim Oliveira Martins
This paper reports the results of several simulations with the OECD's GREEN model designed to quantify the economy-wide and global costs of a range of international agreements to curb carbon dioxide (CO2) emissions. Two particular aspects of international agreements are highlighted. The first is the issue of country coverage; this is examined by simulating an agreement among the OECD countries alone and then extending it to encompass action by the non-OECD countries too. The second is the quantification of the potential welfare gains to individual countries and the world economy as a whole from implementing cost-effective agreements, i.e. international agreements that take account of the principle that the emission reductions should be secured at minimum cost.
Trade and the effectiveness of unilateral CO2-abatement policies: evidence from GREEN
Joaquim Oliveira Martins, Jean-Marc Burniaux and John P. Martin
This paper analyses the effects of unilateral action by one country/region to curb CO2 emissions on both other countrie's emissions - the so-called "carbon leakages" - and changes in sectoral comparative advantage. Several GREEN simulations were run with one or all OECD countries/regions imposing a carbon tax with the aim of stabilising their emissions relative to the 1990 levels. The results suggest that the leakage rate would be small, contradicting the findings of other researchers. In order to test the robustness of this GREEN result, a sensitivity analysis was undertaken with respect to the supply elasticities of fossil fuels and the price elasticity of trade flows. The main conclusion is that the key parameter determining the size of the leakage rate is the supply elasticity of coal.
The effect of existing distortions in energy markets on the costs of policies to reduce CO2 emissions: evidence from GREEN
Jean-Marc Burniaux, John P. Martin and Joaquim Oliveira Martins
This paper highlights how the existence of distortions in energy markets could play an important role in designing a global strategy to curb CO2 emissions. Governments in many non-OECD countries appear to subsidies energy demand heavily. The existence e of these subsidies has several implications. First, eliminating these subsisides is an obvious candidate for a "no-regrets" approach to the design of an international agreement. Second, the economic costs to the world as a whole of curbing global emissions are overestimated when energy subsidies in the non-OECD countries are not treated as explicit distortions. Third, an international agreement involving the elimination of existing subsidies before phasing-in carbon taxes could be achieved at virtually no cost for the non -OECD countries taken as a whole so long as carbon reductions are cost-effectively allocated across countries.
Carbon taxes and current energy policies in OECD countries
Peter Hoeller and Jonathan Coppel
In response to the threat of global warming much attention has been paid to taxes levied on the carbon content of fossil fuels (carbon taxes), since they are potentially efficient economic instrument for reducing emissions of CO2, the main greenhouse gas. This paper first reviews the existing and evolving structure of fossil fuel prices and taxes and the relationship between energy prices and emissions. It then analyses the economic cost of superimposing carbon taxes on top of current energy taxes. Finally, using a simple energy demand system, tax reform proposals are simulated including restructuring present energy taxation by the average implicit carbon tax and a carbon cum energy tax similar to the EC proposal.
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