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The Economic Implications of Reducing Carbon Emissions

This paper presents the results of a series of simulations analysing the implications of measures to reduce carbon emissions in Annex 1 countries, conducted using the Oxford Global Macroeconomic and Energy Model. It shows that the GDP costs of reducing carbon emissions vary significantly across countries and that the cost depends on a number of critical factors including energy intensity, the rise in emissions in the base case and the amount of coal used especially in electricity generation. Moreover, it illustrates that a combination of macroeconomic rigidities and monetary policy responses to higher energy prices means that the output losses are likely to be substantial in the years immediately following the introduction of a carbon tax or similar emissions abatement policy.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q54: Climate; Natural Disasters and Their Management; Global Warming, Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

Keywords: Kyoto protocol, climate models, GDP, Oxford model greenhouse gases, emissions abatement policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-13

Published in Volume 20, Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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