Impact of the current economic instruments on economic activity

Understanding the Existing Climate Policy Mix

This study applies the global economic environmental model GINFORS to analyse the economic wide effects of current policy instrument mixes concerning economic instruments. GINFORS is especially suited for this task, because it is an econometric model and allows for a realistic analysis of policy impacts, as country structures and sectoral interdependencies are reported in deep sector detail. In addition, the theory behind the model has been evaluated, allowing only equations to enter the system, which have passed statistical testing. 

To identify the impacts of the present EU climate policy mix, the study uses a counterfactual simulation as research method for the time between 1995 and 2009. In a first step a baseline is calculated over the estimation period of the model including the current developments of the economic instruments of climate policy. Subsequently, alternative scenarios are created by the model in which EU climate policy instruments have been removed. The comparison of the results of the baseline and the alternative scenarios makes it possible to assess all direct and indirect effects of the EU policy measures.     

The study includes three counterfactual simulations in which the three main economic instruments used in the EU climate policy (taxes on energy goods use, tradable permits as well as subsidies for renewables) are removed. The three guiding questions for these simulations are:

  1. What would have happened, if the tax rates of 2008 would have been frozen at the level of that year 1998 for the whole period till 2008
  2. What would have happened, if the EU ET would not have been installed
  3. What would have happened if no guarantees for investment in renewable energies in form of the feed in tariffs or green certificates would have been given? 

The overall conclusion of the study is that if the EU Member States had not introduced the environmental tax reforms (ETRs), the EU emission trading system (ETS) and subsidies for renewables in the late 1990s and early 2000s, their CO2 emissions would have been up to 12% - 13% higher in 2008 than historically observed. Another conclusion of the study is that if these policy measures would not have been introduced in the EU, the figures for GDP and employment of the EU member states would have been probably lower but certainly not higher.

Attachment: 

Citation: 

Meyer, Bernd; Meyer, Mark. 2013. Impact of the current economic instruments on economic activity. Understanding the Existing Climate Policy Mix. CECILIA2050 WP2 Deliverable 2.6. Osnabrück: Gesellschaft für Wirtschaftliche Strukturforschung (GWS).

Funding: 

European Commission

Authors: 

Mark Meyer, GWSBernd Meyer, GWS

Year of publication: 

2014

Number of pages: 

42

Table of contents: 

1

Executive summary

6

2

General Characteristics of the Model GINFORS

8

2.1

Methodological Annotations

8

2.2

The General Structure of GINFORS

10

2.2.1

The economy module

10

2.2.2

The bilateral trade module

11

2.2.3

The energy and emissions module

11

2.2.4

The resource use module

12

3

The historical simulation

13

3.1

Some technical remarks

13

3.1.1

The exogenous variables

13

3.1.2

Which variables?

13

3.1.3

How to evaluate observed deviations?

14

3.2

Further historical simulation results

18

4

The counterfactual simulations

23

4.1

Taxes on energy demand

23

4.1.1

The assumptions

23

4.1.2

The results

24

4.2

The EU ETS

27

4.2.1

The assumptions

27

4.2.2

The results

27

4.3

Subsidies for renewable energies

30

4.3.1

The assumptions

30

4.3.2

The results

32

5

Conclusions

38

6

References

40