The Economic Implications of Reducing Carbon Emissions

This paper presents the results of a series of simulations analysing the implications of measures to reduce carbon emissions in Annex 1 countries, conducted using the Oxford Global Macroeconomic and Energy Model. It shows that the GDP costs of reducing carbon emissions vary significantly across countries and that the cost depends on a number of critical factors including energy intensity, the rise in emissions in the base case and the amount of coal used especially in electricity generation. Moreover, it illustrates that a combination of macroeconomic rigidities and monetary policy responses to higher energy prices means that the output losses are likely to be substantial in the years immediately following the introduction of a carbon tax or similar emissions abatement policy.