Post-Kyoto climate policy targets: costs and competitiveness implications

This article starts with a review of climate policy targets (temperature, concentrations and emissions for individual regions as well as the world as a whole). A 20-40% reduction target for the EU is proposed for the period 2000-2020. It then looks at costs to meet such targets, and concludes that there is widespread agreement amongst macro-economic studies that stringent carbon controls are compatible with a significant increase in global and regional economic welfare. The difference in growth rates is found to be less than 0.05% per year. Nevertheless, concern still remains about the distribution of costs. If abatement policies are introduced in one or a few regions without similar climate policies being introduced in the rest of the world, some energy-intensive industries may lose competitiveness, and production may be relocated to other countries. Policies to protect these industries have for that reason been proposed (in order to protect jobs, to avoid strong actors lobbying against the climate policies, and to avoid carbon leakage). The article offers an overview of the advantages and drawbacks of such protective policies.