Abstract
Reaching the Sustainable Development Goals requires a fundamental socio-economic transformation accompanied by substantial investment in low-carbon infrastructure. Such a sustainability transition represents a non-marginal change, driven by behavioral factors and systemic interactions. However, typical economic models used to assess a sustainability transition focus on marginal changes around a local optimum, which—by construction—lead to negative effects. Thus, these models do not allow evaluating a sustainability transition that might have substantial positive effects. This paper examines which mechanisms need to be included in a standard computable general equilibrium model to overcome these limitations and to give a more comprehensive view of the effects of climate change mitigation. Simulation results show that, given an ambitious greenhouse gas emission constraint and a price of carbon, positive economic effects are possible if (1) technical progress results (partly) endogenously from the model and (2) a policy intervention triggering an increase of investment is introduced. Additionally, if (3) the investment behavior of firms is influenced by their sales expectations, the effects are amplified. The results provide suggestions for policy-makers, because the outcome indicates that investment-oriented climate policies can lead to more desirable outcomes in economic, social and environmental terms.
Highlights
In climate policy debates, a widespread assumption is that effective climate policy comes at substantial initial costs, and that it would be a burden and a risk for producers and consumers alike
Appendix B shows the main outcomes of the reference scenario
Reaching the Sustainable Development Goals, including climate action and affordable clean energy, requires a fundamental socio-economic transformation accompanied by substantial investment in low-carbon infrastructure
Summary
A widespread assumption is that effective climate policy comes at substantial initial costs, and that it would be a burden and a risk for producers and consumers alike. This understanding is at least partially attributable to the models behind it, which usually exclude positive effects by construction [1]. A concept that relates to the recent macroeconomic discourse, which refers to a transition between different economic equilibria, is the idea of green growth. According to Antal and van den Bergh [2] a synthesis of sustainability thinking and macroeconomics still needs to be accomplished
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