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Abstract

In this paper we analyze the economic effects of CO2 emission reductions in the Basque Country (Spain) using an applied general equilibrium (AGE) model with specific attention to environment-energy-economy interactions. Environmental policy is implemented through a system of tradable pollution permits that the government auctions. The costs of different levels of CO2 abatement are discussed, focusing on the variations of macroeconomic, sectoral and environment-energy variables. Results show that the costs for achieving the Kyoto targets can remain limited if the appropriate combination of changes in fuel-mix and restructuring of the economy is induced.

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