CLIMATE CHANGE POLICY IN EUROPEAN COUNTRIES AND ITS EFFECTS ON INDUSTRY.

In this paper we discuss the effects of different climate change policies on industrial activity and on welfare. We compare the effects of carbon taxes and grandfathered permits and the effects of exemptions for energy-intensive industries. We survey first the insights from economic theory and from model experiments for the US. Next we use a general equilibrium model to assess the effect of different climate change policies on industrial activity per sector and per member country in the EU. We pay particular attention to the effects of policies where one EU member state exempts its energy-intensive sectors from abatement efforts. The main findings are that, in the EU, the effects on industrial activity and the welfare costs of tradable permits or carbon taxes are small when no industrial sectors are exempted. When one member country exempts its energy intensive sector, this will reduce somewhat the impact on its activity level but will generate an extra welfare cost for the EU. [ABSTRACT FROM AUTHOR]