How can Cyprus meet Its energy and climate policy commitments? The importance of a carbon tax
Journal
Cyprus Economic Policy Review
Date Issued
2015
Author(s)
Abstract
The paper presents a new set of energy demand forecasts for the Republic of
Cyprus up to the year 2040, taking into account recent oil price developments and
focusing on the ability of Cyprus to achieve the greenhouse gas emission
reduction targets agreed by EU leaders in October 2014. The emphasis is on
emission reductions in those sectors that are not subject to the EU Emissions
Trading System, i.e. on final energy demand sectors excluding aviation and the
cement industry. According to a ‘baseline’ scenario, energy demand will grow
modestly over the coming decades, which is far from sufficient for Cyprus to
achieve its 2030 emission targets. We therefore develop two additional scenarios
that assume the implementation of an economy-wide carbon tax from 2016
onwards. It turns out that a strong tax increasing by around 15 Euros per tonne of
CO2 every year from 2016 onwards is necessary in order to induce a sufficient
decline in carbon emissions, or alternatively a carbon tax that can start from very
low levels and increase geometrically up to 2030. Such taxes, which are also
recommended by international organisations, would lead to a more rigorous
implementation of energy efficiency measures in buildings and transport than
currently foreseen, and would allow Cyprus both to comply with the EU
decarbonisation targets and to reduce its dependence on fossil fuels.
Cyprus up to the year 2040, taking into account recent oil price developments and
focusing on the ability of Cyprus to achieve the greenhouse gas emission
reduction targets agreed by EU leaders in October 2014. The emphasis is on
emission reductions in those sectors that are not subject to the EU Emissions
Trading System, i.e. on final energy demand sectors excluding aviation and the
cement industry. According to a ‘baseline’ scenario, energy demand will grow
modestly over the coming decades, which is far from sufficient for Cyprus to
achieve its 2030 emission targets. We therefore develop two additional scenarios
that assume the implementation of an economy-wide carbon tax from 2016
onwards. It turns out that a strong tax increasing by around 15 Euros per tonne of
CO2 every year from 2016 onwards is necessary in order to induce a sufficient
decline in carbon emissions, or alternatively a carbon tax that can start from very
low levels and increase geometrically up to 2030. Such taxes, which are also
recommended by international organisations, would lead to a more rigorous
implementation of energy efficiency measures in buildings and transport than
currently foreseen, and would allow Cyprus both to comply with the EU
decarbonisation targets and to reduce its dependence on fossil fuels.
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