Carbon Pricing and Global Warming: A Stock-flow Consistent Macro-dynamic Approach
Sarah Botton and
Emmanuel Bovari ()
Working Paper from Agence française de développement
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.
JEL-codes: Q (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Published in Research Papers
Downloads: (external link)
https://www.afd.fr/sites/afd/files/2018-02-11-52-4 ... iraud-Mc%20Isaac.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:avg:wpaper:en8201
Access Statistics for this paper
More papers in Working Paper from Agence française de développement Contact information at EDIRC.
Bibliographic data for series maintained by AFD ().