A Study on the Economic Effects of Reductions of CO₂ Emissions: A CGE Approach

A Study on the Economic Effects of Reductions of CO₂ Emissions: A CGE Approach

This study aims to conduct a quantitative assessment of the potential economic effects of reductions of CO₂ emissions using the GDyn-E computable general equilibrium (CGE) model. The GDyn-E CGE model is a multi-region, multi-sector dynamic CGE model that makes it possible to explicitly take into account the different timing of policy implementations related to reductions of CO₂ emissions and capital accumulation over time. Two policy scenarios are conducted: reduction targets of CO₂ emissions of Annex I countries (scenario 1) as well as reduction targets of CO₂ emissions of Korea in addition to scenario 1 (scenario 2). Major findings of the study reveal that in the case of scenario 1, all of the Annex I countries are expected to suffer in terms of economic growth and welfare, while non-Annex I countries are to get an additional increase in real GDP and welfare. Moreover, if Korea implements its roadmap to reduce greenhouse gas emissions as planned (scenario 2), Korea s domestic production in all sectors will drop and its opportunity costs of CO₂ emission reductions will amount to a decrease in domestic production of 52.7% in coal, plus corresponding declines of 20% in gas, 9% in oil products, 21.8% in electricity, 10.3% in metals, 7.4% in chemicals and 6.6% in transport.