The Role of Substitution in Understanding the Costs of Climate Change Policy

Foreword     ii

Executive Summary     iii

I. Introduction     1

II. What is Substitution?     3

III. The Model Experiment     6

IV. The Energy and Economic Consequences of Reducing Carbon Emissions     14

V. Reducing Carbon Emissions When Substitution is Less Flexible     20

VI. The Consumption-Leisure Choice: A Dominating Influence     25

VII. The Economic Impact of Revenue Recycling     28

VIII. Conclusions    34

Endnotes     36

References     37

Appendices   
A. A Description of the Intertemporal General Equilibrium Model (IGEM)   39
B. Introducing Inflexibility into IGEM   46
C. Selected Industry Output and Price Changes   48