Meeting EU Climate Pledges: Assessing Some Potential Policy Refinements

From a new IMF report:

“For the 2015 Paris Agreement on climate change, the European Union (EU) pledged to reduce greenhouse gas (GHG) emissions by at least 40 percent below 1990 levels by 2030. Policies envisioned to achieve this goal include: tightening the Emissions Trading System (ETS) covering large emitting firms; requirements for energy efficiency, vehicle CO2 emission standards, and renewables; and policies to meet national-level targets for small-scale emissions sources outside of the ETS. This note analyses various refinements to the envisioned policy package that might meet the 2030 commitments with lower costs and greater fiscal and domestic environmental benefits (though implications for energy security are not considered). The results suggest potential economic and fiscal benefits from greater reliance on emissions pricing—for example, replacing tighter energy efficiency regulations with a higher ETS emissions price and use of carbon taxes (or tax-like instruments) for emissions outside the ETS sector. Other options, such as equating carbon charges across sectors and across countries, yield some economic benefits at the EU level, but do not raise revenue and, without compensating measures, impose uneven burdens across countries.”

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Labels: Energy

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