Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 75: Is CO2 Trading Always Beneficial? A CGE-Model Analysis on Secondary Environmental Benefits

Charlotta Nilsson () and Anni Huhtala ()
Additional contact information
Charlotta Nilsson: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Anni Huhtala: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

Abstract: The paper analyzes the cost-efficiency of trading CO2 emissions by focusing on the overall environmental impacts of active climate policy measures. When reducing CO2 emissions, other emissions, also related to the consumption of fossil fuels, decrease with no additional cost. These secondary benefits must be taken into consideration when analyzing gains from international emissions trading. The Swedish environmental target to comply with the Kyoto Protocol by reducing greenhouse gases, and two national goals to alleviate acidification and eutrofication effects by reducing SO2 and NOx pollutants are simultaneously studied in a CGE-modeling framework. The results indicate that when secondary benefits are taken into account, it may still be in the government’s interest to decrease CO2 nationally, instead of engaging in seemingly low-cost trading.

Keywords: emissions trading; secondary benefits; climate policy

27 pages, July 1, 2000

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