Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249146 
Year of Publication: 
2021
Series/Report no.: 
Discussion Papers No. 956
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
We theoretically and numerically analyse the impacts for a small, open country with carbon abatement ambitions of joining a coalition with allowance trading. Besides welfare impacts for both the coalition and the small, open economy joining the coalition, we scrutinise how the studied policy options differ with respect to their distributional impacts across domestic income groups. Our example is the EU 2030 policies and Norway's linking to it. In spite of theoretical ambiguity, the findings suggest that the tighter the links with the EU, the lower the abatement costs for Norway. The distributional profile of the welfare costs tends to be progressive, i.e., the relative (and absolute) incidence of the carbon policy falls more heavily on wealthy households than poor households, regardless of the choice of linking options. However, the less progressive, the lower the overall welfare cost. This indicates a trade-off between efficiency and distribution concerns. A national capand-trade system without linking to the EU is the least cost-effective option for Norway but also the most progressive as the higher income deciles face lower capital return and wages.
Subjects: 
Carbon policies
Distributional impact
Emission Trading System
Effort Sharing Regulation
Computable General Equilibrium model
JEL: 
68
Q43
Q48
Q54
Q58
Document Type: 
Working Paper

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