This study examines the economic impact of greenhouse gas mitigation in Spain using a dynamic Applied General Equilibrium model. The model captures the main energy and economic interactions and evaluates policies with a broad impact on economic activity. The article focuses on the impacts of the Kyoto Protocol. In order to investigate the costs of mitigation, we focus on key macroeconomic variables, on sectoral variables, energy mix and emission permit prices. Results show that the costs of achieving Kyoto in the long run, although not comparable to any environmental policy from the past, could be contained if a shift toward a less carbon intensive economy is induced; through improvements in energy efficiency, through changes in the energy mix and in production and consumption patterns and, finally, and crucially, through technological innovation.

Key words: Climate Change, Applied General Equilibrium Models, Spain.
JEL classification: D58, H21, Q48.