Economics Department

Economic Survey - Hungary 2004: Sustainable development

 

How to reach environmental goals at lower costs?

The Kyoto target is set to be attained, but the climate change strategy could be made more cost-effective. The current and future emissions trading price should
be used as a benchmark for the evaluation of the cost effectiveness of greenhouse gas mitigation measures. However, in doing so, costs and benefits that flow from meeting other policy objectives should also be taken into account. For instance, renewable energy programmes which are designed to reduce greenhouse gas emissions, can also improve air quality to a certain extent. More comprehensive analysis of the environmental impact of the various renewable energy projects should also be carried out. The alignment of energy prices for households to market rates, as already underway for businesses, would also provide a cost-effective mitigation measure. Although considerable improvement has been achieved in air quality, Hungary faces important challenges in reducing emissions to comply with its international commitments and those relating to forthcoming European Union membership. Hungary has recently transposed the EU Directive on large combustion plants into national legislation. Although the benefits of the associated emission reductions are likely to outweigh the costs, this command-and-control approach will not minimise the overall abatement costs. As regards mobile sources, economic instruments could be used to a greater extent to contain air pollutant emission; in particular, road-use pricing and vehicle taxation based on emissions should be seriously considered.

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