The economic effects of a more ambitious EU carbon target in Hungary

Publication - January 21, 2011
A report on the costs and benefits for Hungary of moving to a 30 percent carbon target by 2020.

 

The costs and benefits for Hungary of an EU-wide -30% greenhouse gas (GHG) reduction target are assessed in this report. This assessment is based on the assumption that reductions in the ETS sectors and non-ETS sectors in Hungary, under this target, will amount to -34% and +6% respectively, compared to 2005 emissions.

A -20% and also a -30% EU target can possibly be met by Hungary at negative cost. Overall cost savings within a -20% EU target are estimated to be approximately €2.6 billion (708 billion HUF). These savings are estimated to be only €60 million (16 billion HUF) lower under a -30% target. In the ETS sectors, saving occurs under both targets. In the non-ETS sectors, additional costs are accrued in Hungary with a -30% target, but many options are still likely to be realised at negative cost. These results critically depend on our modelling assumptions. This includes assumptions on future energy prices, non-economical barriers and the discount rate. We used a discount rate of 6% that fits with a social planner perspective, not with a pure business perspective.

Implementing GHG reduction measures is anticipated to result in the creation of additional jobs. This direct employment effect is estimated to be 10% higher under a -30% target, compared to the effects under a -20% target. Energy security in Hungary would also be slightly improved.

Hungary can potentially reduce its emissions even further than under a -30 % target. An additional amount of roughly 2.6 Mt CO2 can be reduced in the ETS sectors, and roughly 1.6 Mt CO2 in the non-ETS sectors at a cost lower than 30 €/t. It is important that these additional negative and low cost domestic abatement options are exploited. For Hungary, additional abatement would increase investments, which likely results in additional employment and energy security benefits. For the EU, emission reductions could be achieved more cost-effectively if Hungary’s negative and low cost abatement options were exploited fully.

For the ETS sectors, full flexibility is available for parties in other EU Member States to utilise low cost abatement options in Hungarian ETS installations. For non-ETS sectors, Hungary could consider to explore further options to sell surplus emission allocations (accrued by capturing low cost emission reductions) to other EU member states.

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