A new economics approach to modelling policies to achieve global 2020 targets for climate stabilisation

Abstract

This paper explores a Post Keynesian, ‘new economics’ approach to climate policy, assessing the opportunities for investment in accelerated decarbonisation of the global economy to 2020 following the Great Recession of 2008–2009. The risks associated with business-as-usual growth in greenhouse gas (GHG) concentrations in the atmosphere suggest that avoiding dangerous climate change will require that the world’s energy-economy system is transformed through switching to low-carbon technologies and lifestyles. Governments have agreed a target to hold the increase in temperatures above pre-industrial levels to at most 2°C and have offered reductions by 2020 in GHG emissions or the carbon-intensity of GDP. The effects of policies proposed to achieve pathways to 2020 towards this target are assessed using E3MG, an Energy-Environment-Economy (E3) Model at the Global level. E3MG is an annual simulation econometric model, estimated for 20 world regions over 1972–2006 adopting a new economics approach. Additional low-GHG investment of some 0.7% of GDP, with carbon pricing and other policies, is sufficient to achieve a pathway consistent with a medium chance of achieving the long-term target. GDP is above reference levels because decarbonisation reduces world oil prices and increases investment. Employment is some 0.9% above reference levels by 2020 and public finances are almost unaffected.

Keywords:

• climate change mitigation
• green new deal
• energy-environment-economy (E3) modelling
• post-2012 policies
• World Energy Outlook

Acknowledgement

The support of the Three Guineas Trust, one of the Sainsbury Family Trusts, is gratefully acknowledged in funding this work.

Notes

*Other major economies: Brazil, China, the Middle East, Russia but not South Africa. This is because South Africa falls under the ‘rest of world’ region within E3MG.

*Other major economies: Brazil, China, the Middle East, Russia but not South Africa. This is because South Africa falls under the ‘rest of world’ region within E3MG.

1. This section gives a very brief description of the model. Further details are in http://sites.google.com/site/4cmrhome/home/our-research/e3mg and http://www.e3mgmodel.com.

2. http://cancun.unfccc.int/.