Positive and normative analysis of the output opportunity costs of GHG emissions reductions: A comparison of the six largest EU economies. (November 2018)

• Record Type: Journal Article
• Authors: Guerra, Ana-Isabel; Sancho, Ferran
• Is Part Of: Energy policy. Volume 122(2018)
• Page Start: 45
• Page End: 62
• Publication Date: 2018-11
• Subjects: C61 -- C67 -- Q52; Armington assumption -- Distributed emissions -- Minimum output opportunity costs; Energy policy -- Periodicals; Politique énergétique -- Périodiques; Electronic journals; 333.79
• DOI: 10.1016/j.enpol.2018.07.022
• Languages: English
• ISSNs: 0301-4215

Abstract

Abstract: Any policy that aims at reducing GHG emissions by way of modulating the structure of an economy will entail resource reallocation and therefore an implicit economic cost. In this paper, we present a novel answer to this question using positive and normative analyses in such a way that they complement one another. From a positive perspective, we first propose a new look at the analysis of sectors' distributed GHG forward emissions on the basis of absolute rather than marginal effects. Using this information, we then move to a normative viewpoint using an environmental extended input-output linear programming system and compute lower bounds for the potential gross and net output losses for each production unit when facing emissions reduction targets, such as those proposed by the European Union in their 20-20-20 Directive. The originality of our approach relies on two aspects, namely, the introduction of an Armington assumption to link domestic and imported output and that, differently to previous works, total final demand drives the optimal adjustments to reach emissions cuts while minimizing output losses. Our empirical exercise compares the results of these normative and positive analyses for the six largest economies in the European Union. Highlights: Evaluation of the output costs of reducing GHG emissions associated to each sector. The optimization mechanisms rely upon total demand flows. Novel I-O modelling methodology incorporates an Armington assumption. Evaluation uses both a positive and a normative approach. Results are compared across the six largest EU economies.