A CGE analysis of a rate-based policy for climate change mitigation

We conducted a computable general equilibrium analysis of a policy to regulate carbon dioxide emissions per unit of production in Japan. It is often claimed that regulations based on emission rates might lead to an increase in carbon dioxide emissions but would not suppress economic growth. This study shows that in the short run, a rate-based policy does not lead to an increase in emissions. We also compared a rate-based policy with a cap-and-trade policy and found that the former leads to a greater reduction in the real GDP than the latter. Furthermore, the change in output tends to be more evenly distributed under a rate-based policy than under with a cap-and-trade policy, although the former is inferior in terms of cost-effectiveness.