Optimizing production with energy and GHG emission constraints in Greece: An input-output analysis

Under its Kyoto and EU obligations, Greece has committed to a greenhouse gas (GHG) emissions increase of at most 25% compared to 1990 levels, to be achieved during the period 2008-2012. Although this restriction was initially regarded as being realistic, information derived from GHG emissions inventories shows that an increase of approximately 28% has already taken place between 1990 and 2005, highlighting the need for immediate action. This paper explores the reallocation of production in Greece, on a sector-by-sector basis, in order to meet overall demand constraints and GHG emissions targets. We pose a constrained optimization problem, taking into account the Greek environmental input-output matrix for 2005, the amount of utilized energy and pollution reduction options. We examine two scenarios, limiting fluctuations in sectoral production to at most 10% and 15%, respectively, compared to baseline (2005) values. Our results indicate that (i) GHG emissions can be reduced significantly with relatively limited effects on GVP growth rates, and that (ii) greater cutbacks in GHG emissions can be achieved as more flexible production scenarios are allowed.