EU Climate Mitigation Policy

By Jiaqian Chen, Maksym Chepeliev, Daniel Garcia-Macia, Dora M Iakova, James Roaf, Anna Shabunina, Dominique van der Mensbrugghe, Philippe Wingender

September 16, 2020

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Jiaqian Chen, Maksym Chepeliev, Daniel Garcia-Macia, Dora M Iakova, James Roaf, Anna Shabunina, Dominique van der Mensbrugghe, and Philippe Wingender. EU Climate Mitigation Policy, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: The views expressed herein are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper aims to contribute to the debate on the choice of policies to reach the more ambitious 2030 emission reduction goals currently under consideration. It provides an analysis of the macroeconomic and distributional impacts of different options to scale up the mitigation effort, and proposes enhancements to the existing EU policies. A key finding is that a well-designed package, consisting of more extensive carbon pricing across EU countries and sectors, combined with cuts in distortionary taxes and targeted green investment support, would allow the EU to reach the emission goals with practically no effects on aggregate income. To enhance the social and political acceptance of climate policies, part of the revenue from carbon pricing should be used to compensate the most vulnerable households and to support the transition of workers to greener jobs. A carbon border adjustment mechanism could complement the package to avoid an increase in emissions outside the EU due to higher carbon prices in the EU (“carbon leakage”). From a risk-reward perspective, the benefits of reducing the risk of extreme life-threatening climate events and the health benefits from lower air pollution clearly outweigh the costs of mitigation policies.

Subject: Carbon tax, Economic growth, Emissions trading, Environment, Greenhouse gas emissions, Income, National accounts, Sustainable growth, Taxes

Keywords: Carbon price signal, Carbon tax, DP, DPPP, Eastern Europe, Emissions trading, ETS price, EU climate adaptation, EU directive, EU effort, EU emission, EU export, EU GHG emission, EU mitigation Policy framework, EU Policy framework, EU production emission, EU recovery, EU taxonomy, Global, Greenhouse gas emissions, Income, Price volatility, Sustainable growth, Trading partner

Publication Details

Pages:

67
Volume:

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DOI:

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Issue:

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Series:

Departmental Paper No. 2020/013
Stock No:

EUCMPEA
ISBN:

9781513552569
ISSN:

2616-5333

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