Quantifying the economic cost of reducing GHG emissions through changes in household demand: A linear multi-sectoral approach for European countries

Abstract

The mitigation of Greenhouse Gas Emissions can be approached in various ways: from the supply side, by using improvements in technologies and input uses; and from the changes in the demand for products, by influencing consumer behavior to achieve a more sustainable consumption pattern. Either way it can be approached using multi-sectoral data based on an input-output or on a Social Accounting Matrix (SAM) framework, although a suitable database and the proposal of appropriate indicators are needed. A suitable database is developed through the estimation of new SAMs for the latest possible period, that of year 2015. This paper focuses on the demand approach: that of changes in the demand for products. It analyzes the different impacts among activities and commodities of a change in domestic household consumption patterns, compares the potential reductions in Greenhouse Gas (GHG) emissions obtained through the reduction of specific demands, and considers the consequent reduction in output and employment. For this purpose, a linear multi-sectoral analysis is employed that focuses on the main EU member states. Despite major differences between countries, the results show that a decrease in emissions through demand-reduction policies exerts greater negative effects on those less polluting sectors with a higher intensity in the labor force, and offers a more suitable option for those highly polluting sectors with a lower concentration of the work factor. Richer countries that are based on service sectors therefore suffer a sharper drop in employment using this kind of policy.