How cost effective is EU climate policy? Evidence from Portugal using integrated modelling

Abstract

The European Union (EU) has long been at the forefront of international efforts to tackle climate change. The challenge becomes designing the most cost-eDective policy mix, capable of reducing greenhouse gas (GHG) emissions at the lowest cost to the economy. In this paper, an integrated CGE modelling approach is applied to explore the cost-effectiveness of EU climate policy, taking Portugal as a case study. Results indicate that the current EU climate policy configuration makes GHG reduction more costly than needed. The mitigation targets for 2030 could be achieved at least cost through the implementation of a comprehensive cap-and-trade system instead of the actual emission market segmentation. Moreover, the economic argument on counterproductive overlapping regulation is not corroborated by our results. This finding shows the importance of considering the specificities of each Member State when designing policy mixes. Results also highlight the importance of considering market distortions when assessing policy performance.