Reducing carbon emissions in Portugal: the relative roles of fossil fuel prices, energy efficiency, and carbon taxation

Alfredo Pereira and Rui Pereira

Journal of Environmental Planning and Management, 2017, vol. 60, issue 10, 1825-1852

Abstract: We assess the role of fossil fuel prices, energy efficiency, and carbon taxation in achieving climate policy goals using a dynamic general-equilibrium model of the Portuguese economy. Given the forecasts for international fossil fuel prices, improving energy efficiency and implementing a new carbon tax have significantly different economic and budgetary effects. Greater energy efficiency reduces emissions and has a positive economic effect, but increases public and foreign debt. A carbon tax reduces emissions at a cost for the economy, but leads to positive effects on public and foreign debt. Thus, it is important to pursue both strategies. We estimate that under the reference-price scenario, a steady energy efficiency gain of 2%–2.5% per year and a carbon tax of at least 35 € per tCO2 are needed to achieve the stated goal of reducing carbon dioxide emissions by 2030 by an amount equivalent to 40% of the emissions in 1990. These views were fully integrated in a proposal presented by the Commission for Environmental Tax Reform to the Portuguese Government in September 2014, and then discussed in Parliament in November 2014, before enacting a new carbon tax on 1 January 2015.

Date: 2017
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Working Paper: Reducing Carbon Emissions in Portugal: The Relative Roles of Fossil-Fuel Prices, Energy Efficiency, and Carbon Taxation (2015)
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DOI: 10.1080/09640568.2016.1262832

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