1. Macroeconomic Impact of Air Pollution Reduction
evaluation with the general equilibrium model GEM-E3

2. The GEM-E3 model
As a macroeconomic model it allows evaluating the full effect of a policy on the economy (GDP, employment, income, trade)
it covers 22 EU countries
follows the general equilibrium methodology,
demand and supply functions derived from microeconomic behaviour of economic agents (optimisation of their objective)
markets clear through prices and prices are such that at equilibrium all agents optimise their behaviour (agriculture is treated as the other sectors)
covers the entire economic activity within a country
simultaneously multinational (EU) and specific for each country, markets clear at country level or Europe wide, where appropriate

3. Assumptions for the policy scenarios
The reduction targets are derived from RAINS
The reference scenario includes a climate policy
A ‘command and control’ type of policy instrument is assumed
Public budget constant relative to GDP compared to reference (through flexible employer’s social security contribution)
Only the EU adopt an air pollution control policy

4. Macroeconomic impact at EU level

5. Macroeconomic impact at EU level
Macroeconomic impact remains small
Employment effect is negligible at EU level
With the ‘command and control’ policy instrument, the burden falls mostly on households
The competitiveness of the EU economy is not really affected because of small price effect
The sectors delivering abatement equipment benefit from the policy