When considering the introduction of energy and climate policies, numerical model analyses are useful tools. Bottom-up energy-system models and top-down general equilibrium models originate from different research communities: energy technologists and energy economists, respectively. We align a version of each type, introduce similar energy policies and compare the outcomes. The case is an energy-saving target for the Norwegian residential sector. We identify some important differences in the scope, data, and assumptions in the two model types that lead to noticeably diverging results. Some general conclusions can be drawn from our case study. The perspective and purpose of the study are crucial when choosing model(s). If the outcome for the consumers is in focus, bottom-up energy-system models give more accurate results about technology choices. They also include one type of response to energy policy that is not present in traditional top-down models: change in the use of non-purchased energy, for instance self-collected wood or ambient energy for heat pumps. On the other hand, top-down models feature a wider range of substitution possibilities in demand, by allowing for changes in demand for energy as well as for other goods, not only in the household sector but in all sectors of the economy. It follows that top-down models are more appropriate when the focus is on economy-wide repercussions that can potentially counteract the impacts on the residential sector. As the two model types have complementary contributions to energy policy planning, they should, ideally, be used together to capture a broad set of policy impacts.

This study examines the industrial effects of two measures aimed at mitigating carbon leakage: the EU's Carbon Border Adjustment Mechanism (CBAM) and the allocation of free emission allowances. Currently, the EU allocates free emission allowances based on output (known as output-based allocation, or OBA) to emission-intensive and trade-exposed (EITE) sectors. This system is slated to be replaced by the CBAM, which imposes a tariff on imports of EITE goods and electricity into the EU. This paper analyses the effects of this transition using a computable general equilibrium model, focusing on EU EITE industries. OBA boosts output in the EU's EITE sectors compared to a scenario without any anti-leakage policies. CBAM produces similar effects, except in the case of non-ferrous metals, where output declines. Beyond non-ferrous metals, the positive output effects of CBAM are modest for refined petroleum products and chemical products compared to OBA. Key factors influencing these differences include the sectors' initial emission intensities, export shares, and reliance on intermediate inputs. These factors may also explain why some sectors are resisting the shift from OBA to CBAM. Whereas CBAM and particularly OBA increases EITE output overall, the macroeconomic effects are small. Last, implementation of CBAM reduces carbon leakage more than OBA as currently implemented.Key policy insights The EU ETS transition from free emission allowances to CBAM may reduce activity levels in the EU's emission-intensive and trade-exposed (EITE) sectors.The loss of competitiveness will be most pronounced in sectors that (i) export a large share of their goods to non-EU markets and (ii) rely on inputs covered by the CBAM.The macroeconomic effects are small for both instruments.CBAM reduces carbon leakage more than free emission allowances, because of lower EU electricity imports.

Norway has positioned itself as a climate policy forerunner by aiming to reach net-zero emissions already by 2030. However, the net-zero ambition is not well-defined, not legally binding, nor substantiated by action plans. In a first, interdisciplinary, analysis we scrutinise the net-zero concept and discuss unilateral options. Second, we provide an economic analysis with a global computable model, SNOW, of the costs and macroeconomic impacts of various policy scenarios. It explores how the net-zero ambition interacts with other 2030 goals and quantifies the impacts of emphasising domestic abatement and carbon removal measures vs. paying for emission mitigation abroad. Finally, the 2030 results are revisited to assess how well they align with Norwegian and global climate targets for 2050. The main findings are that pursuing the net-zero ambition, on top of other binding 2030 goals Norway is already committed to, will increase costs by 25–100% depending on the use of domestic measures. On the margin, domestic measures are found to have only small, uncertain, and costly mitigation potential, thus, buying international carbon credits will be inevitable. Besides being significantly cheaper, carbon trading can have the potential benefits of developing the credit markets and the individual projects’ qualities. Even if domestic measures can play but a modest part in the net-zero strategy towards 2030, we identify several steps governments unilaterally can take today to expand abatement opportunities towards mid-century. We also find measures that seem cost-effective in pursuing 2030 goals but look less attractive against a global 2050 backdrop.

Transportation is one of the main contributors to greenhouse gas emissions. Climate regulations on transportation are often a mix of sector-specific regulations and economy-wide measures (such as emission pricing). In this paper we consider how different and partly overlapping climate regulations interact and what are the effects on economic welfare, abatement costs and emissions? Our focus is on Norway, a nation where high taxation of conventional fossil-fuelled cars has paved the floor for another pillar of climate policies: promotion of electric vehicles (EVs) in private transport. Our contribution to the literature is two-fold. First, we analyse the costs and impacts of the partly overlapping climate regulations in transportation—the cap on domestic non-ETS emissions and the goal of all new cars for private households being EVs—focussing on the outcome in 2030. Second, we respond to a gap in the literature through a methodological development in economy-wide computable general equilibrium (CGE) approaches for climate policy by introducing EV technologies as an explicit transport equipment choice for private households. We find that, for the case of Norway, combining a specific EV target with policy to cap emissions through a uniform carbon price more than doubles the welfare costs.

Since the financial crisis in 2008, slow growth has riddled Europe and the Covid-19 pandemic is amplifying the challenge. Promoting economic growth and transforming to a more knowledge-based industrial structure will be high on the agenda for the coming decades. We study how more and better human capital can contribute to knowledge accumulation and structural change by means of a dynamic endogenous growth model, with Norway as a numerical case. Human capital has two main roles in productivity growth: to increase the innovative capacity by participating in research and development (R&D), and to increase the absorptive capacity in sectors that trade and can learn from abroad. We find that in a small, open economy sectors where human capital, R&D and trade interact, and enable absorption, tend to grow fastest.

We examine the impact of both R&D tax credits and direct R&D subsidies on Norwegian firms' patenting. Whereas direct subsidies are aimed at projects with low private and high social return, tax credits do not discriminate between projects or technologies. We find that both direct subsidies and tax credits have significant positive effects on patenting. However, the magnitude of the effects depend critically on the firms' pre-treatment characteristics. In particular, the statistically significant estimates are all related to firms with no patent applications prior to obtaining support. Moreover, we estimate that direct subsidies have triggered at least three times as many granted patents per NOK million of support compared to tax credits. Our results suggest that R&D support should be directed to promote innovations at the extensive margin, i.e. to firms with a high potential of becoming innovative rather than to firms with a record of being innovative. Moreover, as targeted subsidies generate more innovations, society would benefit from distributing more of the subsidies to priority areas.

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Ambitious energy efficiency goals constitute an important part of the EU's road to a low-carbon society. While the introduction and restructuring of climate policy instruments is taking place rapidly, knowledge of how the instruments interact is lagging behind. This analysis looks at the 2030 policy goals for residential energy efficiency and how they interact with targets for restricting CO2 emissions. The case studied is Norway, which has committed to new climate policy targets for 2030 in line with the EU. A multi-sector computable general equilibrium model of the Norwegian economy is used to explore the cost, emission and energy rebound effects of alternative interpretations of the policy underlying the proposed 2030 energy efficiency goal. The model incorporates bottom-up information on energy efficiency investments and takes account of both energy and process emissions. The economic costs of the energy efficiency policies are found to be high: equivalent to a welfare loss of 1%. The costs rise when energy efficiency policies interact with carbon pricing. Economy-wide rebound amounts to nearly 40%, mainly because energy-intensive, trade-exposed industries expand. As emissions from these industries stem from both combustion and industrial processes, total CO2 emissions increase by 2.4%. (C) 2017 Elsevier Ltd. All rights reserved.

This paper provides new evidence on the role of non-market based (command-and-control) regulations in relation to innovations in environmental technologies. While pricing is generally considered the first-best policy instrument, non-market regulations, such as technology standards and non-tradable emission quotas, are common when a regulator faces multiple emission types and targets, heterogeneous recipients, or uncertainty with regard to marginal damages. Knowing whether these regulations spur or hinder innovation is of great importance to environmental policy. Using a unique Norwegian panel data set that includes information about the type and number of patent applications, technology standards, non-tradable emission quotas, and a large number of control variables for almost all large and medium-sized Norwegian incorporated firms, we are able to conduct a comprehensive study of the effect of non-market based regulations on environmental patenting. Unlike previous studies that are typically conducted at the industry level, we are able to take firm heterogeneiry into account, and thereby reduce the common problem of omitted variable bias in our analysis. We empirically identify strong and significant effects on innovations from implicit regulatory costs associated with the threat that a firm will be sanctioned for violating an emission permit.

Climate benefits of unilateral carbon policies are undermined by carbon leakage. To counteract leakage and increase global cost-effectiveness carbon tariffs can be imposed on the emissions embodied in imports from non-regulating regions. We present a stylized model analysis on the economic incentives for emissions abatement of producers subjected to carbon tariffs. The impacts of different carbon tariff designs are, then, quantified by an empirically based multi-sector, multi-region computable general equilibrium model of the global economy. We find that firm-targeted tariffs can deliver considerably stronger leakage reduction and higher gains in global cost-effectiveness than tariff designs operated at the industry level. Moreover, because the exporters are able to reduce their carbon tariffs by adjusting emissions, their competitiveness and the overall welfare of their economies will be less adversely affected than in the case of industry-level carbon tariff regimes.

We investigate how, in an open economy, carbon taxes combined with output-based rebating (OBR) perform in interaction with the carbon policies of a large neighbouring trading partner. Analytical results suggest that, whether the purpose of the OBR policy is to compensate firms for carbon tax burdens or to maximize welfare (accounting for global emission reductions), the OBR rate should be positive in policy-relevant cases. Numerical simulations for Canada, with the US as the neighbouring trading partner, indicate that the impact of US policies on the OBR rate will depend crucially on the purpose of the Canadian OBR policies. If, for a given US carbon policy, Canada's aim is to restore the competitiveness of domestic emission-intensive and trade-exposed (EITE) firms to the same level as before the introduction of its own carbon taxation, we find that the necessary domestic OBR rates will be insensitive to the foreign carbon policies. However, if not only the Canadian carbon tax but also an equally high US tax is introduced, compensatory Canadian OBR rates will be up to 50% lower, depending on the sector and on US OBR policy. If the policy objective is to increase economy-wide allocative efficiency (welfare) of Canadian policies by accounting for carbon leakage, the US policies will have only a minor downward pressure on desirable OBR rates in Canada. Practical choices of OBR rates hardly affect overall domestic economic performance; thus, output-based rebating qualifies as an instrument for compensating EITE industries without a large sacrifice in terms of economy-wide allocative efficiency.

The EU 2030 climate and energy framework (EC, 2014) includes targets for greenhouse gas emissions for sources embraced by the Emission Trading System (ETS) as well as for those outside of the ETS. Emissions mitigation efforts can, however, be counteracted by carbon leakage. For this reason, the EU has introduced anti-leakage policy for the most trade-exposed ETS industries. The 2030 climate and energy framework does also allow for non-EU associates and the non-member Norway has decided to link its climate policy to EU’s. This paper takes a look at costs and benefits of such a strategy for a small, open economy. In this context, we also include an analysis of the particular rules designed to limit carbon leakage and whether anti-leakage instruments are beneficial for the competitiveness of the trade-exposed industries involved, and what are the repercussions for other industries. The framework in EC (2014) opens for interactions among non-ETS (NETS) sources across borders and between the ETS and NETS sectors, so-called flexible mechanisms. The designs and the coverage of such mechanisms will be important for the costs of the 2030 goals. Within the EU 2030 framework, existing instruments that are designed to dampen carbon leakage are intended to be prolonged. While border carbon adjustments as carbon tariffs and export rebates have been frequently on the agenda (Fischer and Fox, 2012), the main compensation arrangement in the EU ETS system is free allowances. The revised ETS Directive also allows for national state aid schemes that compensate the most exposed industries for increases in electricity costs as a result of the EU ETS.

Using a rich Norwegian panel data set that includes information about environmental regulations such as environmental taxes, non-tradable emission quotas and technology standards, all kinds of polluting emissions, and a large number of control variables, we analyze the effects of direct and indirect environmental regulations on environmental performance. We identify positive and significant effects of both direct and indirect policy instruments. Moreover, we test whether the two types of regulations lead to positive and persistent effects on environmental performance. We find evidence that direct regulations promote such effects. Indirect regulations, on the other hand, will only have potential persistent effects if environmental taxes are increasing over time.

Climate effects of unilateral carbon policies are undermined by carbon leakage. To counteract leakage and increase global cost-effectiveness carbon tariffs can be imposed on the emissions embodied in imports from non-regulating regions. We present a theoretical analysis on the economic incentives for emission abatement of producers subjected to carbon tariffs. We quantify the impacts of different carbon tariff designs by an empirically based multi-sector, multi-region CGE model of the global economy. We find that firm-targeted tariffs can deliver much stronger leakage reduction and higher efficiency gains than tariff designs operated at the industry level. In particular, because the exporters are able to reduce their carbon tariffs by adjusting emissions, their competitiveness and the overall welfare of their economies will be less randomly and less adversely affected than in previously studied carbon tariff regimes. This beneficial distributional impact could facilitate a higher degree of legitimacy and legality of carbon tariffs.

While the introduction and reformation of climate policy instruments take place rapidly in Europe, the knowledge on how the instruments interact lags behind. In this paper we analyse different interpretations of the 2030 climate policy goals for residential energy efficiency and how they interact with targets for restricting CO2 emissions. We focus on Norway, whose climate and energy policies are integrated with those of the EU. As we account for investment costs of improving energy efficiency we find substantial welfare costs of energy efficiency policies, particularly when interacting with carbon pricing. Rebound effects within households are small, but economy-wide indirect rebound is significant because energy-intensive, trade-exposed (EITE) industries expand. As residential energy use consists mainly of carbon-free electricity, this expansion of EITE-industries leads to increased total CO2 emissions.

Financial support from the European Community’s Seventh Framework Programme, Project ENTRACTE (No 308481) is acknowledged. While carrying out this research, all the authors have been associated with CREE – Oslo Centre for Research on Environmentally Friendly Energy. CREE acknowledges financial support from the Research Council of Norway, University of Oslo and user partners.

Climate effects of unilateral carbon policies are undermined by carbon leakage. To counteract leakage and increase global cost-effectiveness carbon tariffs can be imposed on the emissions embodied in imports from non-regulating regions. We present a theoretical analysis on the economic incentives for emission abatement of producers subjected to carbon tariffs. We quantify the impacts of different carbon tariff designs by an empirically based multi-sector, multi-region CGE model of the global economy. We find that firm-targeted tariffs can deliver much stronger leakage reduction and higher efficiency gains than tariff designs operated at the industry level. In particular, because the exporters are able to reduce their carbon tariffs by adjusting emissions, their competitiveness and the overall welfare of their economies will be less randomly and less adversely affected than in previously studied carbon tariff regimes. This beneficial distributional impact could facilitate a higher degree of legitimacy and legality of carbon tariffs.