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Emission targets and coalition options for a small, ambitious country: An analysis of welfare costs and distributional impacts for Norway

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  • Fæhn, Taran
  • Yonezawa, Hidemichi
Abstract
We theoretically and numerically analyse the impacts for a small, open country with carbon abatement ambitions of joining a coalition with allowance trading. Besides welfare impacts for both the coalition and the small, open economy joining the coalition, we scrutinise how the studied policy options differ with respect to their distributional impacts across domestic income groups. Our example is the EU 2030 policies and Norway's linking to it. In spite of theoretical ambiguity, the findings suggest that the tighter the links with the EU, the lower the abatement costs for Norway. The distributional profile of the welfare costs tends to be progressive, i.e., the relative (and absolute) incidence of the carbon policy falls more heavily on wealthy households than poor households, regardless of the choice of linking options. However, the less progressive, the lower the overall welfare cost. This indicates a trade-off between efficiency and distribution concerns. A national cap-and-trade system without linking to the EU is the least cost-effective option for Norway but also the most progressive as the higher income deciles face lower capital return and wages.

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  • Fæhn, Taran & Yonezawa, Hidemichi, 2021. "Emission targets and coalition options for a small, ambitious country: An analysis of welfare costs and distributional impacts for Norway," Energy Economics, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:eneeco:v:103:y:2021:i:c:s0140988321004746
    DOI: 10.1016/j.eneco.2021.105607
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    Cited by:

    1. Brita Bye & Kevin R. Kaushal & Orvika Rosnes & Karen Turner & Hidemichi Yonezawa, 2023. "The Road to a Low Emission Society: Costs of Interacting Climate Regulations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(3), pages 565-603, November.
    2. Jia, Zhijie, 2023. "The hidden benefit: Emission trading scheme and business performance of downstream enterprises," Energy Economics, Elsevier, vol. 117(C).
    3. Richard S. J. Tol, 2023. "Navigating the energy trilemma during geopolitical and environmental crises," Papers 2301.07671, arXiv.org.

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    More about this item

    Keywords

    Carbon policies; Distributional impact; Emission trading system; Effort sharing regulation; Computable general equilibrium model;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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