Environmental climate instruments in Romania – A comparative approach using dynamic CGE modelling

This research explores the effect of technological change on climate policies and abatement cost in Romania using a general equilibrium framework. Through intertemporal dynamics, the model exogenously simulates active population growth (Ramsey, 1928) and endogenously introduces the technological progress originating in fundamental research (Romer, 1990). To explicitly describe the permit market, the model adopts appropriate
disaggregation criteria and builds a multi-sector structure. Two distribution rules are tested, including allowances that are freely distributed among sectors, as mostly provided within the European Trading Scheme (ETS) until 2012, as well as allowances that are auctioned to participants, as per the European Commission’s goal to gradually increase auctioning until 2020. Tax and permit analysis drive the two modelling growth motors so that auctions act as a carbon tax when permits are sold at the same price. Final remarks on the findings as well as policy recommendations are presented in the final section.