Long-run effects of post-Kyoto policies: Applying a fully dynamic CGE model with heterogeneous capital

The paper develops a new type of CGE model to predict the effects of carbon policies on consumption, welfare, and sectoral development in the long run. Growth is fully endogenous, based on increasing specialization in capital varieties, and specific in each sector of the economy. The benchmark scenario is calculated based on the endogenous gains from specialization which carry over to policy simulation. Applying the model to the Swiss economy we nd that a carbon policy following the Copenhagen Accord entails a moderate but not negligible welfare loss compared to development without any negative effects of climate change. Energy extensive as well as capital and knowledge intensive sectors profit in the form of increased growth rates