Economic analysis of the climate pledges of the Copenhagen Accord for the EU and other major countries

This article uses the world GEM-E3 computable general equilibrium model to assess the economic consequences of the climate ‘Copenhagen Accord’. The model allows analyzing the macroeconomic costs in terms of GDP, the change in employment, as well as the impacts on production of specific energy-intensive sectors. Various 2020 climate scenarios are evaluated depending on the GHG mitigation pledges. We find that the cost for the developed countries is around 0.5% of GDP in 2020 for the more ambitious pledges, whereas the GDP effects are more heterogeneous across developing countries and Russia, reflecting the different pledges and the assumptions in the reference scenario across these countries. Further, the article explores whether there is a form of double dividend in the EU when the revenues from auctioning or taxation of GHG emissions are used to reduce the social security contributions of employees. We conclude that GDP and employment perform better compared to the free allocation of permits when more sectors are subject to auctioning or GHG taxes and the additional government revenues are used to reduce the cost of labour. ► Economic analysis of reducing beyond 20% in the context of the ‘Copenhagen Accord’. ► The GDP effects are small for the EU when stepping up from 20% to 30%. ► More auctioning leads to higher GDP and employment compared to free allocation. ► The additional employment is estimated to be one million jobs. ► Energy intensive sectors are not worse off when auctioning or taxation is used.