Climate Policy

Uncertainty in Future Carbon Emissions: A Preliminary Exploration

In order to analyze competing policy approaches for addressing global climate change, a wide variety of economic-energy models are used to project future carbon emissions under various policy scenarios. Due to uncertainties about future economic growth and technological development, there is a great deal of uncertainty in emissions projections. This paper demonstrates the use of the Deterministic Equivalent Modeling Method, an efficient means for propagating uncertainty through large models, to investigate the probability distributions of carbon emissions from the MIT Emissions Prediction and Policy Analysis model. From the specific results of the uncertainty analysis, several conclusions with implications for climate policy are given, including the existence of a wider range of possible outcomes than suggested by differences between models, the fact that a "global emissions path through time" does not actually exist, and that the uncertainty in costs and effects of carbon reduction policies differ across regions.

Unemployment Effects of Climate Policy

This paper models the unemployment effects of restrictions on greenhouse gas emissions, embodying two of the most significant types of short term economic imperfections that generate unemployment: sectoral rigidities in labor mobility and sectoral rigidities in wage adjustments. A labor policy is also analyzed that would reduce the direct negative economic effects of the emissions restrictions.
    The politics of limiting greenhouse gas emissions are often dominated by relatively short term considerations. Yet the current economic modeling of emissions limitations does not embody economic features that are likely to be particularly important in the short term, in particular, the politically sensitive unemployment rate. Moreover, only a few of these studies also consider policies that would offset the negative direct economic effects of emissions restrictions. For plausible estimates of the parameters, the model shows that, with the labor market imperfections, if there were no offsetting policies, the reductions in GNP in the U.S. in the first ten years after emissions restrictions were imposed would be as much as 4 per cent. However, if there were two policies, instead of just one: a counteracting labor market policy, as well as the emissions restrictions, the negative direct economic effects could be completely eliminated.

© 2007 Elsevier Ltd.

Unemployment Effects of Climate Policy

This paper models the unemployment effects of restrictions on greenhouse gas emissions, embodying two of the most significant types of short term economic imperfections that generate unemployment: sectoral rigidities in labor mobility and sectoral rigidities in wage adjustments. A labor policy is also analyzed that would reduce the direct negative economic effects of the emissions restrictions.
    The politics of limiting greenhouse gas emissions are often dominated by relatively short term considerations. Yet the current economic modeling of emissions limitations does not embody economic features that are likely to be particularly important in the short term, in particular, the politically sensitive unemployment rate. Moreover, only a few of these studies also consider policies that would offset the negative direct economic effects of emissions restrictions. For plausible estimates of the parameters, the model shows that, with the labor market imperfections, if there were no offsetting policies, the reductions in GNP in the U.S. in the first ten years after emissions restrictions were imposed would be as much as 4 per cent. However, if there were two policies, instead of just one: a counteracting labor market policy, as well as the emissions restrictions, the negative direct economic effects could be completely eliminated.

Tax distortions and global climate policy

We consider the efficiency implications of policies to reduce global carbon emissions in a world with pre-existing tax distortions. We first show that the weak double dividend, the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion, need not hold in a world with multiple distortions. A small analytic general equilibrium model is constructed to demonstrate this result. We then present a large-scale computable general equilibrium model of the world economy with distortionary taxation. We use this model to evaluate a number of policies to reduce carbon emissions. We find that the weak double dividend is not obtained in a number of European countries. Results also demonstrate the point that the interplay between carbon policies and pre-existing taxes can differ markedly across countries. Thus one must be cautious in extrapolating the results from a country specific analysis to other countries.

© 2003 Elsevier Science

Tax Distortions and Global Climate Policy

We consider the efficiency implications of policies to reduce global carbon emissions in a world with pre-existing tax distortions. We first show that the weak double dividend, the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion, need not hold in a world with multiple distortions. A small analytic general equilibrium model is constructed to demonstrate this result. We then present a large-scale computable general equilibrium model of the world economy with distortionary taxation. We use this model to evaluate a number of policies to reduce carbon emissions. We find that the weak double dividend is not obtained in a number of European countries. Results also demonstrate the point that the interplay between carbon policies and pre-existing taxes can differ markedly across countries. Thus one must be cautious in extrapolating the results from a country specific analysis to other countries.

Technology Detail in a Multi-Sector CGE Model: Transport Under Climate Policy

A set of three analytical models is used to study the imbedding of specific transport technologies within a multisector, multiregion evaluation of constraints on greenhouse emissions. The key parameters of a computable general equilibrium (CGE) model are set to mimic the behavior of a model of modal splits and a market allocation (MARKAL) model of household and industry transport activities. In simulation mode, the CGE model provides key economic data to an analysis of the details of transport technology under policy restraint. Results focus on the penetration of new automobile technologies into the vehicle market.

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