Climate Change in Small Open Economies

Climate change is macro-critical to Andorra: with (mostly winter) tourism accounting for one third of its economy, Andorra is directly exposed to climate change—shorter winter seasons, declining snow falls, higher costs from artificial snow making are all negatively affecting the economy’s main business. Because of its higher altitude, Andorra is more resilient than other winter tourism locations in the region and should use this window of opportunity to enact needed policies. The authorities’ climate change strategy—with ambitious goals—is focused on mitigation. Using the Climate Policy Assessment Tool (CPAT), this paper analyzes the feasibility of achieving the decarbonization objective under different scenarios of carbon tax and efficiency gains. The results show that achieving the decarbonization objectives would require very substantial efficiency gains in the power, transport, and residential sectors and a considerable increase in the carbon tax and. The adaptation component of the government’s climate change strategy is paramount given the macro-criticality of climate change but is still at an incipient stage.