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Emission targets and coalition options for a small, ambitious country: An analysis of welfare costs and distributional impacts for Norway

Taran Fæhn and Hidemichi Yonezawa

Energy Economics, 2021, vol. 103, issue C

Abstract: We theoretically and numerically analyse the impacts for a small, open country with carbon abatement ambitions of joining a coalition with allowance trading. Besides welfare impacts for both the coalition and the small, open economy joining the coalition, we scrutinise how the studied policy options differ with respect to their distributional impacts across domestic income groups. Our example is the EU 2030 policies and Norway's linking to it. In spite of theoretical ambiguity, the findings suggest that the tighter the links with the EU, the lower the abatement costs for Norway. The distributional profile of the welfare costs tends to be progressive, i.e., the relative (and absolute) incidence of the carbon policy falls more heavily on wealthy households than poor households, regardless of the choice of linking options. However, the less progressive, the lower the overall welfare cost. This indicates a trade-off between efficiency and distribution concerns. A national cap-and-trade system without linking to the EU is the least cost-effective option for Norway but also the most progressive as the higher income deciles face lower capital return and wages.

Keywords: Carbon policies; Distributional impact; Emission trading system; Effort sharing regulation; Computable general equilibrium model (search for similar items in EconPapers)
JEL-codes: C68 Q43 Q48 Q54 Q58 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Emission Targets and Coalition Options for a Small, Ambitious Country: An Analysis of Welfare Costs and Distributional Impacts for Norway (2021) Downloads
Working Paper: Emission targets and coalition options for a small, ambitious country. An analysis of welfare costs and distributional impacts for Norway (2021) Downloads
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DOI: 10.1016/j.eneco.2021.105607

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