Impact of Greenhouses Gas Reduction on the Economy and Environment with Different Substitution Elasticities

This study addresses the interactions of the economy and environment in a dynamic computable general equilibrium (CGE) with different substitution elasticities. First, GDP ranges from 0.13% to 0.21% in non-abating countries, because non-abating countries are more competitive than abating countries. Higher values of Armington elasticity mean an easier switch to a product from another region. Second, the degree of capital mobility is a key parameter to measure this effect. Our results show that the degree of international capital movements significantly affects GDP. Third, based on these different fossil fuel elasticities values, the leakage rate ranges from 2.65% to 6.95% and therefore - the higher the elasticity, the lower the leakage.