October 1, 1998

Economic effects of two variants for reducing CO2 emissions by 2% annually in 2000-2020

This paper presents the economic consequences of two policy packages for reducing CO2 emissions.

In variant 1, the volume of private consumption is, in 2020, 1½% lower compared to the baseline scenario. GDP diminishes by 1%, and labour demand is ½% lower. As a consequence of the gradually increasing government subsidies to finance the extra costs of environmental investments and backstop-options, the negative effects are also increasing gradually. This process will continue also after 2020, because the subsidies will be still growing after the scenario period.

The negative effects of variant 2 in 2020 are about 50% higher than the results for variant 1. Private consumption decreases by 2½%, GDP is 1¾% lower, and employment diminishes by ¾%. More subsidies for backstop-options, a higher increase of the small-user energy tax, and a less positive effect because of less environmental investment (particularly less investment in dwellings), account for the more negative picture in comparison with the results for variant 1.

Authors

Martin Vromans
Carel Eijgenraam
Carl Koopmans