Reducing the greenhouse effect in Austria. A general equilibrium evaluation of CO2-policy-options.

The model presented in this paper allows realistic simulations for CO2 policy options for Austria. It is based on a static perfect competition CGE model, calibrated for 1990 Austrian data. Special attention has been given to the implementation of the link of economic and energy data. As a new feature the negative consequences of the CO2 taxation as far as competitiveness in a small open economy is concerned are tried to be mitigated by compensation via wage tax rebates. This is achieved by a sectorally differentiated compensation scheme. As a result competitiveness in the energy intensive sectors can be established by a differentiation in the reduction of wage taxes ranging from 1 percent to 30 percent. Differentiation, as compared to uniform compensation and inspite of maintaining full re-funding of emission revenues, also triggers a positive government revenue effect. Aggregated output losses due to CO2 policy can be mitigated or also overcompensated by stimulating investment in new capital vintages. Such effects have been demonstrated in this paper. As we used a single country model we were not able to simulate effects of coordinated CO2 policy actions, e.g. in line with suggestions of the European Union. (excerpt)