Triple Challenges of Sustainable Development: COVID-19, CO2 Emissions and Public Debts—Findings from a Stylized CGE Model

Abstract

The current European situation can be characterized by a triple challenge: an acceleration in climate change and its consequences (a persistent drought in Europe since 2018), the deadly toll of COVID-19 and the rising public debts to cope with the COVID-19 consequences. These challenges endanger sustainable development in the European Union. The Corona pandemic and the European governmental measures to contain the virus have serious economic and societal implications. The economic growth in the European Union has collapsed, consumption expenditures have significantly declined and the public fiscal budget deficit has risen sharply. On a global scale, the Coronavirus epidemic has also increased the public debts worldwide. Financial debts are not the only debts the global community has to face. CO2 debts denote debts of developed countries to developing countries for the damages caused by their disproportionate contributions to climate change. However, to meet the goals of the Paris Agreement, CO2 emissions have to be reduced significantly to achieve the reduction goal for 2050 (UNFCCC in 2015, [93]; United Nations, Paris agreement. New York, 2015a, [94]). To accomplish this goal based on the recommendations of the Stern Report (Stern in The economics of climate change, The Stern review. Cambridge University Press, Cambridge, 2006 [85]), Metcalf (Metcalf in Paying for pollution: why a carbon tax is good for America, Oxford University Press (in production), Oxford, 2018 [57]) and the Journal Nature Climate Change (Nature Climate Change Editorial in Nat Clim Change 8:647, 2018 [61]), a CO2 tax is being discussed. We take up these developments and analyze the socio-economic-ecological effects of the triple challenges Germany and the EU have to face. We use a computable general equilibrium (CGE) model that consists of two stylized EU countries with three economic sectors: A health sector, Food-Energy-Water-sector and a sector covering the rest of the economy (RoE). The model economy contains three economic agent groups: the private households, the firms and the governments. The CGE model allows the macroeconomic impacts of the Corona pandemic to be analyzed. The concept of Lastenausgleich (burden sharing) is considered within the model to distribute the burdens of the Corona measures to mitigate the COVID-19 effects and the CO2 debts. Therefore, a CO2 tax is also implemented in the model.