The Economic Cost of CO2 Emission Cuts

Xiaobing Zhao

No 103413, 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania from Agricultural and Applied Economics Association

Abstract: We follow Schmalensee, Stoker, and Judson (1998) to forecast CO2 emissions based on the environmental Kuznets curve (EKC). Our findings suggest that the EKC will not lead to significant decreases in CO2 emissions even by 2050 for countries with the highest incomes. Therefore, mandatory emissions cuts are required to limit climate change. In the same spirit of Horowitz (2009) and Ng and Zhao (2010), we then use a reduced-form approach to estimate the economic costs of mandatory emission cuts. Based on our parameter estimates, we find that a 25% mandatory deduction in CO2 emissions from 1990 will lead to a 5.63% decrease in the combined GDP of the 19 OECD countries, and a 40% deduction will result in a 12.92% loss in income (holding other relevant variables constant)! Our estimates are substantially higher than those in Paltsev, Reillya, Jacobya, and Morris (2009) and Dellink, Briner and Clapp (2010), and suggest that the economic cost to limit climate change as envisioned in the Copenhagen Accord may be substantial and more research should be done before mandatory emission cuts are implemented.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 27
Date: 2011
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea11:103413

DOI: 10.22004/ag.econ.103413

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