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The Macroeconomic Effects of the Transition to a Low-Carbon Economy

— theme: Employment and socio-economic policies, Environment and climate
— type: Working Papers

This paper assesses the impacts of climate policies for the global, national and sectoral economies at the macro, system-wide level. It reframes the debate on the macroeconomic effects of greenhouse gas (GHG) mitigation in terms of net benefits to the economy rather than net costs, drawing on the same modelling and other literature as the Intergovernmental Panel on Climate Change’s Fourth Assessment Report.

Author/Editor
The Climate Group, U. of Cambridge and Cambridge Econometrics
Publishing Year
2008

Today, with general acceptance of the scientific findings supporting the link between GHG emissions and climate change, the issue is how to realize the potential for global macroeconomic benefits from international policy cooperation, in which all parties can benefit. A new approach is therefore more relevant, focused on the investment opportunities represented by the need to transform the world’s energy system, and the potential of policies to accelerate sustainable development towards a decarbonised global economy.

The paper covers the following:

  • Impacts of climate policies on GDP growth
  • Effects of induced technological change
  • Why high and rising carbon prices are essential
  • Effects on employment and wages
  • Other macroeconomic aspects of the transition
  • Effects on international trade and competitiveness
  • Recommendations on the road to a Copenhagen agreement
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