Economic models and frameworks to guide climate policy

Cameron Hepburn, Matthew C. Ives, Sam Loni, Penny Mealy, Pete Barbrook-Johnson, J. Doyne Farmer, Nicholas Stern and Joseph Stiglitz

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Reaching net-zero emissions will involve a structural transformation of the global economy. The transition is complicated by deep uncertainty about the new economic configurations that will emerge, coordination challenges, and non-linear dynamics amidst shifting political winds, where nation states are actively intervening to gain comparative advantage in key technologies. Here, we consider key economic questions about the net-zero transition that are of interest to finance ministries, based on a recent survey. Specifically, this paper asks: ‘What is the most effective way economic models and frameworks can help guide policy, given the complexity and uncertainty involved?’ We suggest five general criteria that models and frameworks should meet, and provide some guidance on how to select the right model for the question at hand—there is no single model to rule them all. A range of examples are offered to illustrate how models can be used and abused in the provision of economic advice to policy-makers. We conclude by noting that there are several gaps in our collective modelling capability that remain to be addressed.

Keywords: carbon price; carbon tax; climate; climate policy; economy; finance ministry; integrated assessment models (search for similar items in EconPapers)
JEL-codes: C63 C68 Q54 Q55 Q58 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2025-07-28
New Economics Papers: this item is included in nep-ene, nep-env and nep-hme
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Published in Oxford Review of Economic Policy, 28, July, 2025. ISSN: 0266-903X

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