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This article presents an integrated assessment of climate change, air pollution, and energy security policy. Basis of our analysis is the MERGE model, designed to study the interaction between the global economy, energy use, and the impacts of climate change. For our purposes we expanded MERGE with expressions that quantify damages incurred to regional economies as a result of air pollution and lack of energy security. One of the main findings of our cost-benefit analysis is that energy security policy alone does not decrease the use of oil: global oil consumption is only delayed by several decades and oil reserves are still practically depleted before the end of the 21st century. If, on the other hand, energy security policy is integrated with optimal climate change and air pollution policy, the world's oil reserves will not be depleted, at least not before our modeling horizon well into the 22nd century: total cumulative demand for oil then decreases by about 20%. More generally, we demonstrate that there are multiple other benefits of combining climate change, air pollution, and energy security policies and exploiting the possible synergies between them. These benefits can be large: for Europe the achievable CO2 emission abatement and oil consumption reduction levels are significantly deeper for integrated policy than when a strategy is adopted in which one of the three policies is omitted. Integrated optimal energy policy can reduce the number of premature deaths from air pollution by about 14,000 annually in Europe and over 3 million per year globally, by lowering the chronic exposure to ambient particulate matter. Only the optimal strategy combining the three types of energy policy can constrain the global average atmospheric temperature increase to a limit of 3oC with respect to the pre-industrial level.
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Using an applied general equilibrium model, we explore the impacts of uniform reduction targets, a uniform carbon tax, and permit trading in the Annex 1 countries for the period 2000-2020. Next, we assess the impacts of enlarging the A-1 coalition to the globe, and allow for global permit trading. The impacts suggest among others that more research is necessary on how to change the size of the coalition. This project is funded by the Dutch Ministry of Environment (VROM), the Netherlands Bureau for Economic Policy Analysis (CPB), and the National Institute of Public health and the Environment (RIVM). The authors thank Ben Geurts, Andre de Jong, Carl Koopmans, Paul Tang and Hans Timmer (CPB) and Rob Swart (RIVM) for their comments on the simulations, and Nico van Leeuwen (CPB) for providing the figures. The views and conclusions do not reflect general views of VROM, CPB, or RIVM. Responsibility for any errors made in this paper remain with the authors.
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