Abstract
Measuring the welfare cost of climate change policies is a real challenge, raising difficult issues of micro- and macro-economics: cost-benefit analysis on the one hand, foreign trade and international specialization on the second hand. At the domestic level the possible existence of distortions, in particular in the fiscal system, may either increase or alleviate the welfare cost of a climate change policy, as illustrated by the debate on “double dividend”. Effects on the prices in international markets and distorted competition between countries committed to abate (Annex B) and uncommitted countries affect both the sharing of the burden, in particular through the change in the terms of trade, and the allocation of activities with the frequently waved threat of “delocalization”. Based on a companion theoretical analysis, the present paper aims at putting order in the welfare analysis of climate change policy and to present and compare various estimations, issuing from macro- or computable general equilibrium models. Beside the global welfare cost, the paper focuses on the marginal abatement cost and its relation to the carbon price.
Most present conceptual and applied analysis is based on the case of a single domestic household-consumer. Taking into account several consumers raises new challenges, concerning equity but even more fundamentally the mere definition of fiscal distortion, which have not yet been really addressed.
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Bernard, A.L., Vielle, M. Measuring the Welfare Cost of Climate Change Policies: A Comparative Assessment Based on the Computable General Equilibrium Model GEMINI-E3. Environmental Modeling & Assessment 8, 199–217 (2003). https://doi.org/10.1023/A:1025595223960
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DOI: https://doi.org/10.1023/A:1025595223960