Distributional concerns can influence optimal climate policy design. We compare distributional implications of EU climate policy pathways that differ in their instrument mix, considering carbon pricing and non-price regulation, as well as revenue recycling via uniform transfers and subsidies towards household investments in energy efficiency. We combine energy-economic modelling with a newly constructed dataset of over 240000 households that captures both income- and expenditure-side variation between and within income groups. Results indicate that a policy package with multiple instruments can be the preferred option once impact variability between and within income groups matters, conceptualized by vertical and horizontal equity considerations, respectively. Standards mitigate horizontal equity concerns, while carbon pricing generates revenues for uniform transfers to counteract regressive effects across income groups, and for energy efficiency subsidies to ease within-group impact heterogeneity. These results provide an explicit, quantified, equity-based rationale for the adoption and acceptability of comprehensive climate policy packages.

Accurate and complete environmental information is at the basis of any effective sustainable development policy. This report summarises for the first time the status of air, climate, water and soil in the Western Balkans (WB), describing current knowledge as of 2021 and gaps with respect to the EU aquis in order to: a) benchmark the progress during the accession process, and b) support the implementation of the Green Agenda for the WB with particular reference to depollution and decarbonisation priorities. This information is also relevant for the EU Green Deal zero pollution ambition, as depollution in WB also reduces pollutant levels in neighbouring EU Member States. Despite significant improvements in the alignment of the climate and GHG emissions monitoring and reporting legislation and the good progress in the areas of air and water pollution in the latest two years, the EU aquis implementation is still lagging. The overall WB air quality situation is still critical and the pollution trend is often upwards, despite PM10 and PM2.5 concentration have decreased in certain areas. Due to its dominant impact on mortality, PM2.5 can be considered the main pollutant to target in the WB. The energy sector, in particular coal-fuelled power plants, is the major source of SO2 and CO2 emissions and an important source of other pollutants. It offers a concrete opportunity for co-benefits between air quality and climate policies. The increase in intensity and frequency of summer heatwaves in the latest decades is an indicator of climate change in the WB and the need to design appropriate adaptation plans to cope with it. The status of waterbodies in the WB can generally be assessed as unsatisfactory. In the case of chemical status, 45% of waterbodies assessed failed to reach good status, while in the ecological assessment 54% failed to reach good status. Case studies on antibiotic resistance, as well as effect-based studies on mixtures of pollutants confirmed that aquatic ecosystems, particularly large fluvial rivers, are under considerable anthropogenic pressure. Soil degradation is prevalent and extensive throughout the WB region. Soil erosion is the most relevant degradation process followed by soil pollution. Unsustainable land management practices and natural causes of soil degradation in the region are interlinked. In order to make progress in the implementation of the environmental legislation it is necessary to improve the integration of the environmental measures into key sectorial policies (e.g. energy production, energy efficiency, industry, transport). This principle is reflected in the Green Agenda for the WB and the new EU Soil Strategy. Due to the relatively small area of the WB and the interconnections between ecosystems across and beyond the region, strengthening regional and international cooperation is essential to involve all the relevant actors and stakeholders in the design and implementation of environmental policies.

Limiting global warming in line with the goals in the Paris Agreement will require substantial technological and behavioural transformations. This challenge drives many of the current modelling trends. This paper undertakes a review of 17 state-of-the-art recursive-dynamic computable general equilibrium (CGE) models and assesses the key methodologies and applied modules they use for representing sectoral energy and emission characteristics and dynamics. The purpose is to provide technical insight into recent advances in the modelling of current and future energy and abatement technologies and how they can be used to make baseline projections and scenarios 20-80 years ahead. In order to represent likely energy system transitions in the decades to come, modern CGE tools have learned from bottom-up studies. We distinguish between three different approaches to baseline quantification: (a) exploiting bottomup model characteristics to endogenize responses of technology investment and utilization, (b) relying on external information sources to feed the exogenous parameters and variables of the model, and (c) linking the model with more technology-rich, partial models to obtain bottom-upand pathway-consistent parameters.

This edition of the Global Energy and Climate Outlook (GECO 2020) puts its focus on analysing the impact of the Covid-19 outbreak on the transport sector as a whole. The transport sector has suffered the greatest slump in mobility demand of the history during the lockdown period, while the oil price has plummeted. This report explores the impacts of transport activity trends that may persist in the future from the structural changes induced by the Covid-19 pandemic, as well as of policy initiatives that may be adopted as enabling measures for low-carbon transport. While greenhouse gas emissions in this "New Normal" differ significantly compared to previous projections, the emissions gap towards a 2°C pathway is closed only by some 29%, thereby stressing the need of more ambitious collective action to maintaining global temperature change to well below 2°C.

This edition of the Global Energy and Climate Outlook (GECO) analyses the role of electrification in global transition pathways to a low Greenhouse Gas (GHG) emissions economy. Electricity is found to be an increasingly important energy carrier in final energy consumption already in the absence of stronger climate policies than those currently in place (Reference scenario), while enhanced electrification of final energy demand is a crucial element of the 2°C temperature change scenario, paving the way to climate neutrality. The 2°C target could be achieved by simultaneously transforming various elements of the energy system: shifting final energy demand from mainly fossil fuels towards electricity and low-carbon synthetic fuels mainly derived from electricity; decarbonising power generation; increasing energy efficiency in end-uses, which is favoured by further electrification; and mobilising novel options to better accommodate high shares of intermittent renewable electricity sources, such as demand-side load management and power storage. This report further shows that the 2°C target is technically possible at relatively low cost for the overall economy (global GDP reduction below 1% across all sensitivities compared to Reference in 2050). This would also bring along co-benefits for air quality. In order to explore the role that electrification can play as an emissions mitigation option, a number of sensitivity variants on key parameters impacting the energy system - energy prices, cost of technologies, non-economic drivers related to behaviour and policy - are conducted. The role of electricity is examined by large sector (industry, transport, buildings, power generation), with a particular regional focus on the EU and China and a sectoral focus on road transport electrification.

This paper discusses incentives for investments in transport infrastructure and commuting subsidies in a multi-region framework. Responsibilities of fiscal treatment of commuting expenses, public provision of road infrastructure and road pricing are distributed among different levels of government. The incentives of governments are discussed in a setting with commuting from a peripheral, less productive area to an urban agglomeration or city center. The interactions between investment in transport infrastructure, road pricing and commuting subsidies are analyzed. First, the optimal number of commuters from the point of view of the federation is derived in a first best situation. When a tax on labor is levied to finance the investment in transportation, a commuting subsidy can correct the labor tax distortion and the first best outcome can be obtained. However, when the peripheral region is in control of the transport policy and perceives its position as a dominant supplier of labor, the regional government will have an incentive to strategically restrict the number of commuters. This will lead to a commuting tax. In addition, there will be underinvestment in infrastructure investment. The city government faces different incentives. On the one hand, profits made in the city increase with the commuting flow. Assuming profits are captured locally, the city thus benefits from a higher number of commuters. On the other hand, the city can raise tax revenues by taxing commuters. Therefore, tax exporting behavior can be one of the drivers of the city's transport policy. The result is a situation where the city invests in transport infrastructure to attract commuters and sets a tax on commuters to raise government revenues. We show that the intensity of the regional strategic behavior is affected by firm ownership structure, the number of labor-supplying regions and the revenue-sharing mechanism in the federation. The paper also looks into vertical tax competition and identifies possibilities for the federal government to correct the incentive structure through mechanism design. A numerical example illustrates the insights for commuting in Belgium.