A Complex System Perspective on the Economics of Climate Change, Boundless Risk, and Rapid Decarbonization

Francesco Lamperti, Giovanni Dosi and Andrea Roventini

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: Climate change stands as one of the most formidable challenges in the twenty-first century. Despite this, our understanding of the unfolding and interconnection of climate-related physical and transitional risks, and their implications for socioeconomic dynamics along various transition pathways, remains insufficient. This deficit of understanding echoes throughout the formulation of effective climate change policies. In this context, our chapter emphasizes the need for a comprehensive and interdisciplinary approach to address climate change. Such an approach must (1) credibly encompass the immense risks that global warming exerts on the Earth system; (2) account for the intricate processes of technical change and technology diffusion that are at the core of the low-carbon transition; (3) allow the percolation of risks and opportunities across sectors and regions; (4) account for behavioral change in consumption dynamics; and (5) allow testing of a wide range of climate policies and their robustness. Complex-systems science offers distinct vantage points for framing the intricate climate challenge. While outlining current research gaps, we argue that the current generation of climate-economy models rooted in complex systems provides a promising starting point to fill these gaps. We delve into a series of findings that evaluate the material impact of climate risks on economic and financial stability and explore alternative trajectories for policy implementation. Our analysis underscores the ability of complex-systems models to account for the extreme costs of climate change and the emergence of critical tipping points, wherein unmitigated emissions lead to free-falling declines in long-term growth and catalyze financial and economic instability. Given such findings, we argue that a complex-systems perspective on climate change advocates for stricter and earlier policy interventions than do traditional climate economy models. These policies can transform the seemingly antithetical objectives of decarbonization and economic growth in standard models into complementary ones. We assert that a combination of regulation and green industrial policies can nurture eco-friendly investments and foster technological innovation, thus steering the economy onto a zero-carbon sustainable growth pathway. These results challenge conventional precepts in the realm of cost-benefit climate economics and offer the building blocks for a more robust and realistic framing of the climate challenge.

Keywords: climate change; complex system; agent-based modeling; decarbonization; climate risk (search for similar items in EconPapers)
Date: 2025-04-14
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