Emission Policies and the Nigerian Economy: Simulations from Dynamic Applied General Equilibrium Model

Abstract

Recently, there has been growing concern that human activities may be affecting the global climate through growing atmospheric concentrations of greenhouse gases (GHG). Such swimming could have major impacts on economic activity and society. For the Nigerian case, the study uses multisector dynamic applied general equilibrium model to quantify the economy-wide, distributional and environmental costs of policies to curb GHG emissions. The simulation results indicates effectiveness of carbon tax, tradeable permit and backstop technology policies in curbing GHG emissions but with distorted economy wide income distributional effects. However, the model was found to be sensitive to three key exogenous variable and parameters tested: lower GDP growth rate, changed inter-fuel substitution elasticity and autonomous energy efficiency factor. Unlike the first test, the last two test only had improved environmental effect but stable economy wide effect. This then suggest that domestic energy conservation measures could be a second best alternative.

Keywords: greenhouse gases, dynamic applied general equilibrium model, carbon tax, tradeable permits, backstop technology carbon dioxide, sulphur oxides, nitrogen oxides

JEL Classification: Q43, C63, C68, D58