Inefficiencies in regional commuting policy.

This paper discusses investments in transport infrastructure and incentives for commuting taxes in a multiregional setting. We study the horizontal and vertical interactions between governments. We identify incentives for strategic and tax exporting behavior that might lead to underinvestment in transport infrastructure. Furthermore, we show that the intensity of the strategic behavior is affected by geographic firm ownership structure, the number of labor-supplying regions and the revenue-sharing mechanism in the federation. A numerical example applies the insights on commuting in Belgium.

Regional government competition and incentives for commuting taxes and transport investments

This paper discusses incentives for investments in transport infrastructure and commuting subsidies in a multi-region framework. Responsibilities of fiscal treatment of commuting expenses, public provision of road infrastructure and road pricing are distributed among different levels of government. The incentives of governments are discussed in a setting with commuting from a peripheral, less productive area to an urban agglomeration or city center. The interactions between investment in transport infrastructure, road pricing and commuting subsidies are analyzed. First, the optimal number of commuters from the point of view of the federation is derived in a first best situation. When a tax on labor is levied to finance the investment in transportation, a commuting subsidy can correct the labor tax distortion and the first best outcome can be obtained. However, when the peripheral region is in control of the transport policy and perceives its position as a dominant supplier of labor, the regional government will have an incentive to strategically restrict the number of commuters. This will lead to a commuting tax. In addition, there will be underinvestment in infrastructure investment. The city government faces different incentives. On the one hand, profits made in the city increase with the commuting flow. Assuming profits are captured locally, the city thus benefits from a higher number of commuters. On the other hand, the city can raise tax revenues by taxing commuters. Therefore, tax exporting behavior can be one of the drivers of the city’s transport policy. The result is a situation where the city invests in transport infrastructure to attract commuters and sets a tax on commuters to raise government revenues. We show that the intensity of the regional strategic behavior is affected by firm ownership structure, the number of labor-supplying regions and the revenue-sharing mechanism in the federation. The paper also looks into vertical tax competition and identifies possibilities for the federal government to correct the incentive structure through mechanism design. A numerical example illustrates the insights for commuting in Belgium.

Impact of low oil prices on the EU economy

The report describes the importance of oil for the EU economy and analyses the potential economic effects that current low oil prices since mid-2014 may have in the EU28 economy. Further it assesses how the current oil price decrease may evolve up to 2020 and the consequences for global oil consumption. The analysis shows that a decrease of the oil price from US$100 to US$50 may lead to a GDP gain of about 0.7%, both on a global level and in the EU28, driven by private consumption and investment. The global gains are not evenly distributed. Net oil importing countries gain, whereas oil exporting countries lose. The analysis mainly focuses on the EU28 and it shows that the more oil-intensive countries and sectors gain more than the rest of the economy. A 50% decrease of the oil price may generate up to 3 million additional jobs (1.3% of the total labour force). Interestingly, oil-intensive sectors do not necessarily improve their competitiveness vis-à-vis their competitors in other regions, as non-EU producers may be less energy efficient and therefore benefit more from low oil prices.JRC.J.1-Economics of Climate Change, Energy and Transpor

Distributional impacts of reaching ambitious near-term climate targets across households with heterogeneous consumption patterns: A quantitative macro-micro assessment for the 2030 Climate Target Plan of the EU Green Deal

This report enriches economy-wide modelling with household-level microdata to assess the distributional impacts of climate policy in the broader context of the EU Green Deal. The first part of the report provides a detailed exploration of the EU Household Budget Survey data in the light of its use in analysing climate policy impacts across households with heterogeneous consumption patterns. The second part of the report describes the macro-micro framework to combine the Household Budget Survey with the JRC-GEM-E3 model. The third part studies scenarios that cover three different policy configurations – ranging from a regulation-based to a pricing-based approach – all of which reach a reduction in greenhouse gas emissions of 55% in 2030 relative to 1990. Results provide insights into the potential distributional implications across EU households of an upward revision of the 2030 targets, a key aspect in achieving a Just Transition to climate neutrality. Regulation-based policies can mitigate price changes observed by households, while pricing-based policies raise revenue that have the potential to offset regressive impacts. Careful design of targeted complementary measures will therefore be required to reconcile social and environmental sustainability.JRC.C.6-Economics of Climate Change, Energy and Transpor

Climate policy design, competitiveness and income distribution: A macro-micro assessment for 11 EU countries

Concerns about industry competitiveness and distributional impacts can deter ambitious climate policies. Typically, these issues are studied separately, without giving much attention to the interaction between the two. Here, we explore how carbon leakage reduction measures affect distributional outcomes across households within 11 European countries by combining an economy-wide computable general equilibrium model with a household-level microsimulation model. Quantitative simulations indicate that a free allocation of emission permits to safeguard the competitive position of energy-intensive trade-exposed industries leads to impacts that are slightly more regressive than under full auctioning. We identify three channels that contribute to this effect: higher capital and labour income; lower tax revenue for compensating low-income households; and stronger consumption price increases following from higher carbon prices needed to reach the same emissions target. While these findings suggest a competitiveness-equity trade-off, the results also show that redistributing the revenues from partial permit auctioning on an equal-per-household basis still ensures that climate policy is progressive, indicating that there is room for policy to reconcile competitiveness and equity concerns. Finally, we illustrate that indexing social benefits to consumer price changes mitigates pre-revenue-recycling impact regressivity, but is insufficient to compensate vulnerable households in the absence of other complementary measures

Global Energy and Climate Outlook 2017: How climate policies improve air quality

This study shows that achieving the climate change mitigation target of staying below 2°C temperature rise is possible technically – thanks to an acceleration of decarbonisation trends, an increased electrification of final demand and large changes in the primary energy mix that include a phase out of coal and a reduction of oil and gas – and is consistent with economic growth. It yields co-benefits via improved air quality – including avoided deaths, reduction of respiratory diseases and agricultural productivity improvement – that largely offset the cost of climate change mitigation. These co-benefits arise without extra investment costs and are additional to the benefits of avoiding global warming and its impact on the economy.JRC.C.6-Economics of Climate Change, Energy and Transpor

Integrate health into decision-making to foster climate action

The COVID-19 pandemic reveals that societies place a high value on healthy lives. Leveraging this momentum to establish a more central role for human health in the policy process will provide further impetus to a sustainable transformation of energy and food systems

Projecting input-output tables for model baselines

This technical report describes a multi-regional generalized RAS (MR-GRAS) procedure to update/project input-output tables or social accounting matrices. The method is able to incorporate a number of constraints on row and columns sums as well as specific flows between economic sectors and specific taxes in an input-output table. This feature is particularly useful to reconcile information coming from different data sets. In the application described in this report, the method is tailored towards constraints with regard to the energy system. Specifically, we specify constraints in the updating/projecting algorithm that are able to reproduce the economic values reflected in an energy balance from an energy system model. Here, we show that the method is able to generate input-output tables that are forward projected until 2050 and can be used as a baseline in a computable general equilibrium model like JRC-GEM-E3.JRC.C.6-Economics of Climate Change, Energy and Transpor

Global Energy and Climate Outlook 2018: Sectoral mitigation options towards a low-emissions economy

This report analyses global transition pathways to a low Greenhouse Gas (GHG) emissions economy The main scenarios presented have been designed to be compatible with the 2°C and 1.5°C temperature targets put forward in the UNFCCC Paris Agreement, in order to minimise irreversible climate damages. Reaching these targets requires action from all world countries and in all economic sectors. Global net GHG emissions would have to drop to zero by around 2080 to limit temperature increase to 2°C above pre-industrial levels (by around 2065 for the 1.5°C limit). The analysis shows that this ambitious low-carbon transition can be achieved with robust economic growth, implying small mitigation costs. Results furthermore highlight that the combination of climate and air policies can contribute to improving air quality across the globe, thus enabling progress on the UN Sustainable Development Goals for climate action, clean energy and good health. Key uncertainties in future pathways related to the availability of future technological options have been assessed for Carbon Capture and Sequestration (CCS) and bioenergy. If CCS technologies would not develop, a 2°C pathway would have a similar mitigation trajectory in the first half of the century as a 1.5°C scenario with CCS.JRC.C.6-Economics of Climate Change, Energy and Transpor

Are the G20 economies making enough progress to meet their NDC targets?

Under the Paris Agreement, countries committed to a variety of climate actions, including post-2020 greenhouse gas (GHG) emissions reduction targets. This study compares projected GHG emissions in the G20 economies under current climate policies to those under the GHG targets outlined in the nationally determined contributions (NDCs). It is based on an assessment of official governmental estimates and independent national and global studies. The study concludes that six G20 members (China, India, Indonesia, Japan, Russia and Turkey) are projected to meet their unconditional NDC targets with current policies. Eight members (Argentina, Australia, Canada, the European Union, Republic of Korea, South Africa and the United States) require further action to achieve their targets. Insufficient information is available for Saudi Arabia, and emission projections for Brazil and Mexico are subject to considerable uncertainty. The study also presents high-level decarbonisation indicators to better understand the current progress towards meeting the NDCs – Saudi Arabia and South Africa were found to continue increasing both emission intensity per unit GDP and emissions per capita under current policies by 2030 from 2015 levels.</p