Reducing carbon emissions in Portugal: the relative roles of fossil fuel prices,energy efficiency,and carbon taxation |
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Authors: | Alfredo M Pereira Rui M Pereira |
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Institution: | Department of Economics, College of William and Mary, Williamsburg, VA, United States |
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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. |
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Keywords: | fossil fuel prices energy efficiency rebound effects carbon taxation economic effects budgetary effects dynamic general-equilibrium endogenous growth Portugal |
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