The SoMBI Project
Background
With the European Climate law adopted in 2021, the European Union has legally determined to become climate-neutral by 2050, thus recognizing the need to ambitiously combat anthropogenic climate change. The law also contains the intermediate target of reducing greenhouse gas emissions by 55% by 2030 compared to 1990 levels. Although EU-wide emissions have been decreasing for the past three decades, declining by 31% between 1990 and 2022, reaching the ambitious long-term decarbonization objective will require further efforts. Significant emission reductions will therefore have to be achieved in all areas of the economy, particularly in the buildings and transport sectors. From 2027 on a separate, EU-wide emission trading system (ETS 2) will become operational for emissions from road transport, buildings, and other sectors (mainly small, non-ETS industry) introducing a uniform EU-wide carbon price.
Objectives of the project
The project SoMBI aims at contributing to the research on the potential of carbon pricing for reducing GHG emissions in the EU Member States. Specifically, the focus was on three research questions:
- What are the effects of carbon pricing policies for the non-ETS sectors on CO2 emissions?
- What are the macroeconomic impacts of these carbon pricing policies?
- What are the distributional effects of these carbon pricing policies across household income quintiles and regions?
To answer these questions, a model-based analysis with the 'ADAGIO' model was carried out. For two case study countries (Austria and Poland), that differ considerably in terms of the structure of their energy systems and economies, results were discussed along with the EU 27. We focussed on the macroeconomic and GHG effects of the introduction of a carbon price under various revenue recycling options (i.e., increases in public consumption, lump-sum transfers for households, reductions in income taxes, reductions in workers' social security contributions, reductions in non-wage labour costs, and reductions in the value added tax rate). In addition, the distributional effects of the policy scenarios for 15 different household types (income quintiles x three different areas of residence) were investigated, thereby also addressing one important dimension of horizontal distribution.
