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Is Fuel-Switching a No-Regrets Environmental Policy? Vector Auto-Regressive Evidence on Carbon Dioxide Emissions, Energy Consumption and Economic Performance in Portugal

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Alfredo M. Pereira, Rui Manuel Marvão Pereira
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The objective of this paper is to estimate the impact of carbon dioxide emissions from fossil fuel combustion activities on economic activity in Portugal in order to evaluate the economic costs of policies designed to reduce carbon dioxide emissions. The study found that energy consumption has a significant impact on macroeconomic activity. Based on this finding, the study developed a number of policy implications, including the conclusion that, when the overall economic costs of reducing carbon dioxide emissions are considered, fuel switching is a no-regrets environmental policy capable of reducing carbon dioxide emissions without jeopardizing economic activity.