The control of CO<Subscript>2</Subscript> emissions and its economic impact: An AGE model for a german state

Since it is believed that CO<Subscript>2</Subscript> is responsible for 55% of the greenhouse effect, a CO<Subscript>2</Subscript> levy is now under consideration in several countries. For an assessment of the macroeconomic implications of an integrated energy and environmental policy we employ an applied general equilibrium model (AGE) since all sectors of an economy and all private households contribute to CO<Subscript>2</Subscript> emission. Our model is a temporary equilibrium model with capacity extension under adjustment costs and with abatement activities for SO<Subscript>2</Subscript> and NO<Subscript>x</Subscript> emissions. The model of consumer behavior will result in a system of consumer demand functions for non-durables as well as for durable goods. The simulations show the cost of inefficiency in resource allocation if CO<Subscript>2</Subscript> taxes differ between industries and households. We finally present the marginal cost curve of CO<Subscript>2</Subscript> emission reduction. Copyright Kluwer Academic Publishers 1991