Can the trade-off be escaped?

: the potential economic impact of controlling GHG emissions : a case study for Portugal

Abstract

In the upcoming decades, Portugal will need to conduct significant cuts in its GHG emissions’ levels in order to meet its commitment of reaching carbon neutrality by 2050. This thesis aims to contribute to the debate on the design of efficient emission control policies by exploring the link between economic activity and GHG emissions in Portugal. More specifically, through the study of how intersectoral linkages could result in such policies imposing significant costs on the economy, thus leading to the emergence of a trade-off, where a lower level of GHG emissions is associated with a lower level of output. Firstly, it is shown that the study of this trade-off is justified given the result that, in Portugal, sectors with a higher importance in the production network tend to be those with higher GHG emission intensities of gross output. Using a general equilibrium closed economy model with misallocation in capital and labour inspired by Jones (2011), calibrated for 2005 and 2014, a trade-off is indeed found to exist – with the magnitude of the elasticity of GHG relative to output being of roughly 2 in both years. However, using a method allowing for quantification of an approximate SecondBest solution (which results from the imposition of an emission’s constraint) such trade-off is found to be escapable through a reallocation of capital and labour across sectors. Nevertheless, the costs of such policy will be higher if in the economy there is a positive correlation between sector centrality and sectoral emission intensity.

Date of Award	25 Jan 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Isabel Horta Correia (Supervisor)