Welfare implications of EU Effort Sharing Decision and possible impact of a hard Brexit

Highlights: • We evaluate the new EU effort sharing decision with regard to 2030 and 2050 European GHG emissions commitments. • We show that for this effort sharing decision high income Member States pay for low income Member States. • We simulate several policy options that reconsider UK participation in the EU climate policy after Brexit. • We conclude that a hard Brexit could have a significant negative impact on the UK climate policy cost and a limited one for EU27. - Abstract: In this paper, we evaluate the recent developments of European climate policy from the perspective of the 2030 and 2050 European commitments. Using the general equilibrium model GEMINI-E3, we analyze the European Effort Sharing Decision proposed in July 2016 and evaluate its cost per member state by 2030. We then simulate its possible extension to 2050 applying a non-cooperative meta-game approach that has been proposed to assess European burden-sharing issues. Considering the Brexit referendum that took place in June 23, 2016 in the United Kingdom, we analyze different possible scenarios of British participation in the European climate policy. We show that Brexit could have a significant negative impact on the United Kingdom's climate-policy cost and a relatively negative effect on the remaining twenty-seven EU member states.