Double Dividend of Climate Protection and the Role of International Policy Coordination in the EU - An Applied General Equilibrium

National economic concerns still hinder the implementation of effective policy measures that would enable a significant reduction of greenhouse gas emissions. Considering other economic problems like unemployment, the enforcement of Maastricht criterions and highly tensed social security systems, the global warming issue seems to be of less priority on the political agenda of EU governments. Nevertheless, the international political pressure forces policy-makers to do something and show at least political willingness. One frequently mentioned instrument that might enable governments to escape the dilemma is the idea of an environmental tax reform. The hope that advocats have in mind is to obtain two positive effects at the same time (double dividend): a decrease in greenhouse gas emissions and an increase in employment and/or consumer welfare.

Our analysis shows that, from an empirical point of view, obtaining an economic dividend in terms of welfare by undertaking an ’intelligent’ environmental tax reform remains at least possible, but relying on it seems rather optimistic as there are numerous uncertain influences that might alter the sign of the welfare effect. Obtaining an economic dividend in terms of employment seems to be more robust. But, the hope that an environmental tax reform might

Conrad, Klaus and Tobias Schmidt (1997), Double Dividend of Climate Protection and the Role of International Policy Coordination in the EU - An Applied General Equilibrium, ZEW Discussion Paper No. 97-26, Mannheim.