Costs and Benefits of Reducing the EU’s Greenhouse Gas Emissions by 30% in 2020

The original assessment of the EU’s climate and energy package estimated that the cost would be between 0.45% and 0.61% of GDP in 2020 in order to achieve a 20% GHG reduction and a 20% renewables target. This paper will revisit the impacts of this climate and energy package. It will discuss a possible increase from 20% to 30% of the GHG reduction target due to recent developments such as the economic crisis, and the outcome of the international climate negotiations. The economic crisis will lower the direct costs needed to achieve the EU’s targets to 0.32% of GDP. This will probably increase with a further 0.22% of GDP in case of an escalation to a 30% GHG reduction scenario and including the use of international credits and banked allowances of up to 5% of this reduction. A step up to 30% GHG reductions with limited fl exibility through the use of international credits, and taking into account the potential outcome of the Copenhagen accord, would result in small employment impacts. These could be positive if auctioning and carbon taxation are introduced that recycle the revenue to lower labour costs. A 30% reduction would also lower air pollution control costs by €3 to 5 billion. The effect on health benefits could be €4 to 17 billion higher.