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Greenhouse gas emissions control strategies and Barcelona objective, Nemesis assesments

Nemesis simulations The scenario about the Barcelona objective (3% of R&D intensity in 2010, 4% for national intensities in 2050) highlights the following results: -From 2002 to 2010, the increase in R&D expenditure engenders rise in GDP (1,7% in 2010) with a spreading of deficits. Total factors productivity rises only by 0,8%and employment increases by 1,4 %. The rise of real disposable income, by 3%, boosts consumption (up to 2,4%). Total investment is also improved by growth (1,8%).

However, because firms finance almost the whole of the R&D expenditure, prices tend to raise and to weigh on European competitiveness. This inflationary effect combined with increased internal demand leads to a deterioration of external deficit (imports up by 1.7%, exports - 0.2% in 2010). - From 2010, research efforts yield an acceleration of total factors productivity gains (up to 5 % in 2030) and an improvement of products quality (up to 11 % in 2030). The growth benefits from increased demand due to the decrease in prices, induced by costs drop, and by the rise in quality.

It is also reinforced by effects of gains of price competitiveness and structural competitiveness on the external balance. In 2030, the increase in GDP is 12,1%, attributed to growth of consumption by 15,5%, of total investment by 6,9%, of extra-European exports by 13,7% and to decline in extra-European imports by 3,2%. In spite of improvement in labour productivity by 8,1%, employment rises by 4,9 %. 10 million jobs are so created in Europe between 2002 and 2030, 3,1 million of which are linked to research. - GDP gains in 2030 vary from 3,67% in Sweden to 7,06 % in France, up to 49,8% in Greece. Job creation benefits more to low R&D intensive countries in 2002 (in terms of the proportion of active population in the trend-based count) than to their partners that are more advanced in research domain. - The growth of GDP by 12,1 % in 2030 yields an increase in CO2 emissions of 0,58%. CO2 emissions rise more than the average in many of the Northern European countries and slowdown in some Southern European countries despite their high GDP growth. - In the scenario whith public-sector orders, GDP grows by 15,8% in 2030, producing an increase in emissions by 6,8%. The low elasticity of economic performance with respect to knowledge stock assumption yields a lesser GDP growth, by 10,9% in 2030, and an emissions reduction of 3,9%. An intermediate result is obtained when we assume that productivity gains are totally passed on into salaries: GDP increases by 11,1% and emissions by 1,31% in 2030. - Environmental impact of economic growth is very sensitive to industrial dynamic in European Union. Transport, electricity and intermediate goods sectors and other R&D-intensive sectors benefit from high improvement of productivity and products quality and win the largest market shares. Intermediate goods sectors see their contribution to European growth be smaller.

The decoupling between the growth of GDP and CO2 emissions is more pronounced in the scenario with public-sector orders and least significant in the scenario with low and constant elasticity to knowledge. The assessments of Kyoto policies (in 2010, -4.4% the CO2 emissions reduction target for Europe) provide the following results on employment: - For Europe, amongst five scenarios proposed, Scenario 2 (Common European tax rate, with revenue recycling) and Scenario 5 (Tradable permits for firms, taxation of households, with revenue recycling) show a positive net impact on employment, transitory in the first case, more durable in the second case. The positive employment impact in Scenario 2 could be more durable if the environmental policy were accompanied by wage moderation. - Countries with baseline emissions in 2010 below their burden sharing commitments achieve the best employment impacts through a tradable permits policy (Scenario 3), for the countries with baseline emissions in 2010 above their burden sharing commitment, it is in “taxation with recycling” scenario. - In the Scenario 3, countries with baseline emissions in 2010 below their burden sharing commitments use their advantage to increase their competitiveness relative to other European countries. Inversely, Scenario 2, in which the burden sharing agreement does not matter, favours countries that must reduce more. - Scenario 5, combining tradable permits and taxation, seems better for Europe as a whole: it incorporates the substitution effects favouring employment in Scenario 2 with the less inflationary effects of the tradable permits policy in Scenario 3. -Taxation recycled though reductions in employers’ social contribution causes energy-intensive sectors to decrease their employment, while employment increases in labour-intensive sectors (consumption goods and services except transports), as well as in Tradable permits policies case, but, in the last scenario, differences in sectoral employment are more limited.

The scenario about the Barcelona objective (3% of R&D intensity in 2010, 4% for national intensities in 2050) highlights the following results:
-From 2002 to 2010, the increase in R&D expenditure engenders rise in GDP (1,7% in 2010) with a spreading of deficits. Total factors productivity rises only by 0,8%and employment increases by 1,4 %. The rise of real disposable income, by 3 %, boosts consumption (up to 2,4%). Total investment is also improved by growth (1,8 %). However, because firms finance almost the whole of the R&D expenditure, prices tend to raise and to weigh on European competitiveness. This inflationary effect combined with increased internal demand leads to a deterioration of external deficit (imports up by 1.7 %, exports - 0.2% in 2010).

- From 2010, research efforts yield an acceleration of total factors productivity gains (up to 5% in 2030) and an improvement of products quality (up to 11% in 2030). The growth benefits from increased demand due to the decrease in prices, induced by costs drop, and by the rise in quality. It is also reinforced by effects of gains of price competitiveness and structural competitiveness on the external balance. In 2030, the increase in GDP is 12,1%, attributed to growth of consumption by 15,5%, of total investment by 6,9%, of extra-European exports by 13,7% and to decline in extra-European imports by 3,2%. In spite of improvement in labour productivity by 8,1%, employment rises by 4,9%. 10 million jobs are so created in Europe between 2002 and 2030, 3,1 million of which are linked to research.

- GDP gains in 2030 vary from 3,67% in Sweden to 7,06% in France, up to 49,8% in Greece. Job creation benefits more to low R&D intensive countries in 2002 (in terms of the proportion of active population in the trend-based count) than to their partners that are more advanced in research domain.

- The growth of GDP by 12,1% in 2030 yields an increase in CO2 emissions of 0,58%. CO2 emissions rise more than the average in many of the Northern European countries and slowdown in some Southern European countries despite their high GDP growth.

- In the scenario whith public-sector orders, GDP grows by 15,8% in 2030, producing an increase in emissions by 6,8%. The low elasticity of economic performance with respect to knowledge stock assumption yields a lesser GDP growth, by 10,9% in 2030, and an emissions reduction of 3,9%. An intermediate result is obtained when we assume that productivity gains are totally passed on into salaries: GDP increases by 11,1% and emissions by 1,31% in 2030.

- Environmental impact of economic growth is very sensitive to industrial dynamic in European Union. Transport, electricity and intermediate goods sectors and other R&D-intensive sectors benefit from high improvement of productivity and products quality and win the largest market shares. Intermediate goods sectors see their contribution to European growth be smaller. The decoupling between the growth of GDP and CO2 emissions is more pronounced in the scenario with public-sector orders and least significant in the scenario with low and constant elasticity to knowledge.
The assessments of Kyoto policies (in 2010, -4.4% the CO2 emissions reduction target for Europe) provide the following results on employment:

- For Europe, amongst five scenarios proposed, Scenario 2 (Common European tax rate, with revenue recycling) and Scenario 5 (Tradable permits for firms, taxation of households, with revenue recycling) show a positive net impact on employment, transitory in the first case, more durable in the second case. The positive employment impact in Scenario 2 could be more durable if the environmental policy were accompanied by wage moderation.

- Countries with baseline emissions in 2010 below their burden sharing commitments achieve the best employment impacts through a tradable permits policy (Scenario 3), for the countries with baseline emissions in 2010 above their burden sharing commitment, it is in taxation with recycling scenario.

- In the Scenario 3, countries with baseline emissions in 2010 below their burden sharing commitments use their advantage to increase their competitiveness relative to other European countries. Inversely, Scenario 2, in which the burden sharing agreement does not matter, favours countries that must reduce more.

- Scenario 5, combining tradable permits and taxation, seems better for Europe as a whole: it incorporates the substitution effects favouring employment in Scenario 2 with the less inflationary effects of the tradable permits policy in Scenario 3.

-Taxation recycled though reductions in employers social contribution causes energy-intensive sectors to decrease their employment, while employment increases in labour-intensive sectors (consumption goods and services except transports), as well as in Tradable permits policies case, but, in the last scenario, differences in sectoral employment are more limited.

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