Introduction Climate change is a challenge to societies and economies around the globe. Basically, policy makers have two options to react to climate change: they can try to slow down and possibly halt climate change (mitigation), or they can accept the change and let their economies at least partially adapt to it (adaptation). Both strategies involve costs. On the one hand, carbon abatement requires the usage of new and comparatively expensive technologiesöfor example, renewable energy sources. On the other hand, adjustments to the effects of a changing climate require private and public resourcesö for example, the use of air conditioning and the construction of flood protection systems. An optimal global policy should counterbalance mitigation and adaptation, minimising the sum of costs caused by mitigation, adaptation, and residual damages. Of course, this stylised global perspective has its theoretical pitfalls and practical limits. For example, in the real world, as emphasised by Tol (2005), adaptation and mitigation are done by different people operating at different spatial and temporal scales. Contrary to mitigation, adaptation is mostly a local or regional issue. This hampers the theoretically possible trade-off adaptation and mitigation. Therefore, at the national level adaptation policy can be treated as a field of action independent from mitigation policy that is determined on an international level. Although adaptation has been less prominent than mitigation in the public, scientific, and economic debate for many years, this perception has changed in recent years. There are at least two main reasons for this. First, climate change is already observable andögiven the inertia of the climate systemöwill inevitably intensify (EEA, 2008; IPCC, 2007a). In other words, even if the world does not warm more than 2 8C above preindustrial temperatures, a target proposed by the EU (CEU, 2004), adaptation is necessary. Second, owing to the well-known free-rider incentives in international negotiations on climate policy, the prospect for a binding agreement restricting the world's emissions sufficiently to halt climate change are at least uncertain (Helm, 2008).

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp07019.pdf Non-technical SummaryEnergy conversion and use are major sources of environmental pollution. Emissions from transport or from burning fossil fuels to produce electricity contribute substantially to global warming and other environmental problems. In line with the economic theory of externalities, several environmental policy measures try to reduce emissions from energy use by influencing the costs of energy consumption. The most important environmental policies in European energy markets are the European emissions trading scheme (EU ETS), energy taxes, subsidies for renewable energy sources, and instruments specifically targeted at the transport sector.A price increase of energy as an input increases production costs. This reduces the domestic and foreign demand for goods and services and, therefore, creates macroeconomic costs. Our paper presents a survey on selected studies on macroeconomic costs of environmental regulation in European energy markets. As some policy measures are initiated on the national level we also include experiences of single Member States, especially Germany.The analysed studies show that the environmental regulation affects the European economy, particularly the energy intensive industries and the industries that produce internationally tradable goods. From a macroeconomic point of view, however, the costs appear to be relatively small. The reason for that is that some sectors benefit from the regulation. If, for example, the regulation creates government revenues which are used to lower non-wage labour costs, this may benefit the labour intensive sectors, such as services. Not surprisingly, macroeconomic costs tend to be higher for more ambitious environmental targets. In this case, also the efficiency of the regulation becomes a more important issue. There are numerous studies on the macroeconomic costs of the EU ETS. Here, the costs depend not only on the assignment of reduction obligations to the sectors participating in the EU ETS but also on the optimal allocation of emission permits between the sectors participating in the ETS and the

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor, (2) internationalization of labor markets, (3) welfare state and labor market, (4) labor markets in transition countries, (5) the future of labor, (6) evaluation of labor market policies and projects and (7) general labor economics. Terms of use: Documents inIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available on the IZA website (www.iza.org) or directly from the author. We derive the shape of optimal unemployment insurance (UI) contracts when agents can exert search effort but face different search costs and have private information about their type. We derive a recursive solution of our dynamic adverse selection problem with repeated moral hazard. Conditions under which the UI agency should always offer separating contracts are identified. We show that the good searcher receives an information rent and that the bad searcher receives the minimal entitlement. From a methodological point of view, we achieve a precise characterization of the sets of jointly feasible entitlements. This allows us to map our analytical results one-to one to a numerical algorithm. According to our results the contract for the good searcher has a decreasing benefit profile, as the one he would be offered in a pure moral hazard environment. In contrast, the contract of the bad searcher is distorted by an adverse selection effect, so that it tends to have an upward-sloping benefit profile. We provide a comparative static analysis of changes in various parameters of our model. JEL Classification:C61, D82, E61, J64, J65

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08061.pdf Non-Technical SummaryIn March 2007, the European Council has agreed upon an ambitious climate policy for the European Union. Given the present lack of an international agreement for the Post-Kyoto era, the EU has committed to an unilateral emission reduction target of 20% of greenhouse gases in 2020 vis-à-vis 1990 levels. However, such an unilateral abatement policy potentially endangers European competitiveness, while the relocation of energy-intensive industries outside Europe may substantially reduce its environmental effectiveness (the so-called 'carbon leakage' problem). To mitigate both detrimental effects, two remedies are currently under consideration in the EU policy arena: border tax adjustments (BTA) and integrated emission trading (IET). Border tax adjustments consist first of tariffs on imported goods mimicking an (environmental) tax on domestic goods and second of rebates for the domestic tax on exported goods. In contrast, under an integrated emission trading regime, foreign producers purchase emission certificates for imports into the EU, while domestic producers do not pay a duty on exports. This paper analyses both policy regimes within a theoretical and a numerical framework. In a stylized two-country model, we demonstrate that both policy options are suitable to address the negative competitiveness implications for domestic producers and to minimise the leakage problem. However, BTA is more effective in protecting domestic competitiveness, while IET reduces foreign emissions to a larger extent. Applying a multi-region, multi-sector general equilibrium model we analyse economic and environmental implications of an unilateral 20% reduction target for the EU including the offsetting policies. The results from our theoretical framework are confirmed for the energy-intensive sectors (covered by either BTA or IET), while the effect of the policy regimes on non-energy intensive sectors (not covered by BTA or IET) significantly modifies the results at the aggregate level: For the domestic energy-intensive and export-oriented sectors the choice between the BTA and IET regimes for the European Union is a matter of priority for protecting their competitiveness or inducing respective foreign energy-intensive sectors to reduce carbon emissions. In contrast, BTA has rather pronounced negative implications for the production level of the sectors not covered by...