Template-Type: ReDIF-Paper 1.0
Title: Carbon Pricing and Global Warming: A Stock-flow Consistent Macro-dynamic Approach
Number: 0a6be926-7c78-4aba-a60b-6c42ea7bb18e
Handle: RePEc:avg:wpaper:en8201
Publication-Status: Published in Research Papers
Author-Name: Emmanuel Bovari
Author-Name: Gaël Giraud
Author-Name: Florent McIsaac
Abstract: To what extent can a worldwide carbon pricing foster the transition towards a low-carbon economy and help mitigate the effects of global warming? We address this question using a stock-flow consistent, financial and non-linear macrodynamics with uncertainty, calibrated for the world economy. We find that the upper-bound of the carbon pricing corridor advocated in the Stern-Stiglitz Commission, when implemented together with additional public subsidies on abatement costs in the private sector, succeeds in driving the economy into the neighbourhood of a balanced growth path. With high probability, this would make it possible to cap the average Earth temperature deviation at below +2.5°C by the end of this century. Absent such strong public involvement, and provided it be captured through a sufficiently convex damage function, the impact of climate change on gross output and capital appears to be powerful enough to almost surely pull the state of the world economy towards a debt-deflationary field, potentially leading to forced degrowth in the second half of the twenty-first century. Such a flow of trajectories is characterised on shorter time scales by low growth, the rise of unemployment as well as private debt, low inflation and interest rates, together with a declining wage share.
Creation-Date: 2018-02-16
File-URL: https://www.afd.fr/sites/afd/files/2018-02-11-52-49/pr-65-Carbon%20Pricing%20and%20Global%20Warming-Bovari-Giraud-Mc%20Isaac.pdf
File-Format: Application/pdf
Classification-JEL: Q
Length: 32