Abstract
The objective of this paper is to estimate the impact of reducing carbon dioxide emissions from fossil fuel combustion activities on economic activity in Portugal. We find that energy consumption has a significant impact on macroeconomic activity. In fact, a 1 ton of oil equivalent permanent reduction in aggregate energy consumption reduces output in the long term by €6,340. More importantly, and since carbon dioxide emissions are linearly related to the amounts of fuel consumed, our results allow us to estimate the costs of reductions in carbon dioxide emissions. We estimate that a uniform standard for reducing carbon dioxide emissions from fossil fuel combustion activities would lead to a marginal abatement cost of €95.74 per ton of carbon dioxide. This is a first rough estimate of the potential economic costs of policies designed to reduce carbon dioxide emissions. At this level one may conclude that uniform, across the board reductions in carbon emissions would have a clear negative effect on economic activity. Hence, at the aggregate level there is clear evidence for a trade-off between economic performance and a reduction in carbon emissions. This opens the door to the investigation of the scope for policy to minimize the costs of environmental policy and regulation.
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This paper is part of a research project financed by a grant from the Fundação de Ciência e Tecnologia do Ministério da Ciência e Tecnologia—Portugal, reference PTDC/ECO/72065/2006. We would like to thank participants of the 3rd Meetings of the Portuguese Economic Journal in June 2009 in Madeira, Portugal, the First Research Workshop of the CASEE in July 2009 in Faro, Portugal, as well as an anonymous referee for very helpful comments and suggestions.
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Pereira, A.M., Pereira, R.M.M. On the potential economic costs of cutting carbon dioxide emissions in Portugal. Port Econ J 9, 211–222 (2010). https://doi.org/10.1007/s10258-010-0061-9
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DOI: https://doi.org/10.1007/s10258-010-0061-9