Working Papers,
National Institute of Economic Research

Abstract: A cost-effective policy instrument to attain the Swedish carbon emission target, suggested by the Government’s commission on flexible mechanisms of the Kyoto protocol, is the purchase of emission allowances within the EU trading scheme, instead of reducing domestic CO2 emissions at higher costs. Also, proposed by the commission, is that only grandfathered, but not imported emission allowances, should be accounted for in the carbon emissions target. This formulation of the target is now under consideration by the Swedish Environmental Protection Agency as instructed in Sweden’s Budget Bill for 2007. The nitrogen and sulphur outcomes of these suggestions for the climate policy are here assessed in the view of Sweden’s official emission projections for 2010 and 2020. In view of the historical emission multipliers and the analysis presented here, the proposed climate policy does not conform to Sweden’s interim targets for nitrogen oxides (NOx) and sulphur dioxide (SO2). Although, the CO2 emission target could be attained at the least costs through emission trading, an environmental policy which brings also SO2 and NOx emissions to the acceptable levels requires additional policy instruments aiming at the exclusive reduction of these emissions. The findings here suggest that these reductions would correspond to decreases of the SO2/GDP and NOx/GDP ratios by 8 and 12 per cent, respectively. The emission multipliers of aggregate demand for CO2-permit trading and non-trading sectors, are calculated by exploiting the environmental accounting matrix of Sweden for 2000 within the framework of an inter industry model.

Keywords: Emission multipliers; carbon trading; emission/GDP ratio; environmental goals

30 pages, June 1, 2007

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