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Can a carbon permit system reduce Spanish unemployment?

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Abstract
This paper addresses the frequently articulated worry for the unemployment impacts of abating CO2 emissions. The Spanish economy is ridden by unemployment rates well above the EU average. At the same time the deviation from EU's intermediate emission goals is more serious than for most other EU countries. We use a CGE model that includes a matching model with two types of labour, and which allows for different pricing rules and returns-to-scale assumptions. Our findings are optimistic. Due to low labour intensity in most of the dirty, Spanish industries, the unemployment rate is hardly affected by introducing an emission permit system. Further, by recycling the sales revenue into reduced labour taxes, unemployment rates fall. Contrary to other studies of Europe, we find that reducing payroll taxes on skilled labour is the most successful in reducing unemployment rates, both through increasing demand and through dampening the supply response to rising wages. All the recycling schemes also generate dividends in terms of welfare, but none offset the abatement costs entirely.

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  • Taran Fæhn & Antonio G. Gómez-Plana & Snorre Kverndokk, 2005. "Can a carbon permit system reduce Spanish unemployment?," Discussion Papers 410, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:410
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    Cited by:

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    2. González-Eguino, Mikel, 2011. "The importance of the design of market-based instruments for CO2 mitigation: An AGE analysis for Spain," Ecological Economics, Elsevier, vol. 70(12), pages 2292-2302.
    3. Baran, Jan & Szpor, Aleksander & Witajewski-Baltvilks, Jan, 2020. "Low-carbon transition in a coal-producing country: A labour market perspective," Energy Policy, Elsevier, vol. 147(C).
    4. Sanz, Nicolas & Schwartz, Sonia, 2013. "Are pollution permit markets harmful for employment?," Economic Modelling, Elsevier, vol. 35(C), pages 374-383.
    5. Bjertnæs, Geir H. & Fæhn, Taran, 2008. "Energy taxation in a small, open economy: Social efficiency gains versus industrial concerns," Energy Economics, Elsevier, vol. 30(4), pages 2050-2071, July.
    6. Antosiewicz, Marek & Fuentes, J. Rodrigo & Lewandowski, Piotr & Witajewski-Baltvilks, Jan, 2022. "Distributional effects of emission pricing in a carbon-intensive economy: The case of Poland," Energy Policy, Elsevier, vol. 160(C).
    7. Fæhn, Taran, 2015. "A shaft of light into the black box of CGE analyses of tax reforms," Economic Modelling, Elsevier, vol. 49(C), pages 320-330.
    8. Mu, Yaqian & Cai, Wenjia & Evans, Samuel & Wang, Can & Roland-Holst, David, 2018. "Employment impacts of renewable energy policies in China: A decomposition analysis based on a CGE modeling framework," Applied Energy, Elsevier, vol. 210(C), pages 256-267.
    9. Oral, Isil & Santos, Indhira & Zhang, Fan, 2012. "Climate change policies and employment in Eastern Europe and Central Asia," Policy Research Working Paper Series 6294, The World Bank.
    10. Markandya, Anil & González-Eguino, Mikel & Escapa, Marta, 2013. "From shadow to green: Linking environmental fiscal reforms and the informal economy," Energy Economics, Elsevier, vol. 40(S1), pages 108-118.
    11. Mahmood, Arshad & Marpaung, Charles O.P., 2014. "Carbon pricing and energy efficiency improvement -- why to miss the interaction for developing economies? An illustrative CGE based application to the Pakistan case," Energy Policy, Elsevier, vol. 67(C), pages 87-103.
    12. Gavard, Claire & Voigt, Sebastian & Genty, Aurélien, 2022. "Using emissions trading schemes to reduce heterogeneous distortionary taxes: The case of recycling carbon auction revenues to support renewable energy," Energy Policy, Elsevier, vol. 168(C).
    13. Boeters, Stefan & Savard, Luc, 2013. "The Labor Market in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1645-1718, Elsevier.

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    More about this item

    Keywords

    Spanish unemployment; Tax reform; Emission Permit Auctions; Employment dividend; Matching functions; Increasing returns to scale; Computable general equilibrium models.;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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