Mid-term policy considerations of the EU green deal

Abstract

The European Green Deal is a comprehensive strategy aiming to fully decarbonize the economy by 2050, with a key target of a 55 % reduction in carbon emissions by 2030. This study contributes to the debate around the European Green Deal by providing insights from different dynamic stochastic general equilibrium models for the six largest European countries and the Union itself. We discuss four policy targets consistent with a 55 % emissions cut by 2030, using carbon prices as the main policy tool. The study reveals that defining fair climate targets for a group of relatively heterogeneous countries like the European ones is challenging. Simple approaches, such as achieving the same CO2 emissions per capita in 2030 or the same emissions over GDP, lead to vastly different policy efforts measured by carbon prices and welfare losses in our model. Implementing a common set of climate policies and tools defined by the European Commission may seem fair, but it results in varying impacts on emissions across countries. The same carbon price has an asymmetric effect on emissions and welfare. Alternatively, achieving the same emission reduction requires different carbon prices for different countries. For example, Spain needs a carbon price of 151 €/tCO2, while Poland only needs 71 €/tCO2 to achieve the target. This asymmetry sparks a debate on determining the right climate target for each country. The article aims to open this discussion rather than provide a definitive answer.