Reducing CO2-emissions under fiscal retrenchment: A multi-cohort CGE-modelfor Austria

The stabilization of budget deficit and budget debt ratios by fiscal retren chment in order to fulfill the Maastricht criteria for the EMU is of centra l focus in most EU countries. At the same time the national policy dimensio n of acute environmental problems such as global warming has receded in the public eye. The environmental dimension nonetheless remains urgent, and a re-evaluation of the prospects of CO2-policy is needed against the backgrou nd of fiscal retrenchment required by supranational obligations. We shall d o this for the small, open, Austrian economy by constructing a dynamic mult i-cohort CGE model enabling us to assess quantitatively the lifetime welfar e impacts on the cohorts affected by three different options for using CO2- permit revenues. The distribution of welfare costs of (Toronto-) CO2-policy across cohorts significantly differs with use. This is explained by income , inheritance and price effects.