The large welfare costs of second-best EU climate policies

The EU is committed to limiting the rise in global average temperature to 2°C above pre-industrial levels and aims to achieve this through a range of policy instruments. This column warns that climate policy need not cost a lot, but imperfect implementation could cause hundreds of billions of euros’ worth of unnecessary welfare losses.

4 replies on “The large welfare costs of second-best EU climate policies”

This analysis and models (which go beyond the narrow scope of the NTUA (Capros et al) analysis for the EC) are extremely valuable. I suppose it should come as no surprise that the multiplicity of targets and instruments leads to sizeable welfare losses relative to uniform carbon prices. The surprise for me was that 27 sovereign states signed up to the “20/20/20” targets. The additional costs/welfare losses could be seen as the trade-off necessary to achieve this agreement. This, of course, does not mean that these losses should not be minimised – or that EU citizens should not be informed of the additional costs. The EU has a long history of hosing consumers surreptitiously to implement common policies that benefit (or do not seriously disadvantage) some group of producers – the CAP is the most egregious.

However, I think the benefits of reducing reliance on fossil fuels (in addition to the carbon emission reducing impacts) should be factored into the analysis. 80-90% of global oil and gas reserves are in the hands of NOCs whose national government owners are continuously refining their ability to capture increasing rents from consuming countries – or to deploy their control of reserves to pursue geopolitical and strategic interests.

Reducing the demand for fossil fuels is an effective means of reducing this economic and political power which can only benefit consuming countries – and encourage more rational pricing and allocation policies in the exporting countries.

After Warmergate, ‘climate change’ policy need not cost anything. How can the EU possibly hope to reduce global temperatures by 2 degrees when the boys at CRU keep pushing them up with their toxic emails?

The paper indeed only considers greenhouse gas emission reduction as a policy goal.

If energy security were a policy goal, I doubt that a renewables target would be the optimal policy. Palm oil from Malaysia strikes me as less secure than coal from Australia.

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