GREENHOUSE-GAS ECONOMICS AND COMPUTABLE GENERAL EQUILIBRIUM

This paper employs a new class of computable general-equilibrium (CGE) models, developed in the context of energy-economy-environmental mode ls to simulate the impacts of the EU economy of internal and multilate ral instruments for regulation of greenhouse gases (GHGs) emissions. C limate change due to emissions gases of greenhouse gases is a long-ter m global environmental problem. While specific impacts on different re gions as well as their timing are yet uncertain, it is reasonable to s uppose that unilateral voluntary action by individual countries to red uce their net emissions of GHGs is unlikely. This is because significa nt reduction of net GHGs emissions by a single major net emitter, say, for example the EU, is unlikely to substantially slow down the rate o f increase in concentration in the atmosphere because the emissions of GHGs worldwide is increasing rapidly with spreading industrialization . On the other hand, unilateral changes in energy use patterns are wid ely perceived to have: adverse effects on a country's economic growth, consumer welfare and trade competitiveness. This perception is shared by both developing (DCs) and industrialized countries (INCs). Some ma jor policy instruments have been assessed on the basis of experiments with the CGE model. The use of each of the policy instrument for direc t GHGs regulation is promising. The results of the above experiments s eem to show, that first, emission standards accomplish significant dec reases in net GHGs emissions with negligible relative GDP and Welfare index changes and without major distributional impacts in the sense of relative changes in factor rewards. They seem to work through major r eduction in coal and natural gas use and slight overall reduction in t he use of petroleum. Second, auctioned tradeable permits also accompli sh large decreases in net GHGs emissions, with, however a perceptible increase in the Welfare Index and significant distributional impacts i n higher rewards to land owners and labor relative to capital owners. They appear to work primarily by expansion to the forest sector and as sociated increases offsets generation. Third, the use of a GHGs tax on positive net emissions of GHGs by industries accomplishes large reduc tions in net GHGs emissions with significant increase in GDP and the W elfare Index. The relative changes in factor rewards are also importan t and favor land owners over labor and capital owners. This instrument too appears to work primarily through considerable expansion of the f orest sector and consequent increases offsets generation. Each of thes e instruments show sufficient promise as effective policy tools for GH Gs reduction, that it would be advisable to conduct further research i n each case. The choice between standards on the one hand. and market- based domestic regulatory instruments on the other, is not straightfor ward. These results need verification through further analysis. (C) 19 98 Society for Policy Modeling. Published by Elsevier Science Inc.