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The costs of climate policies in a second best world with labour market

Céline Guivarch, Renaud Crassous, Olivier Sassi and Stephane Hallegatte ()
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Renaud Crassous: CIRED - centre international de recherche sur l'environnement et le développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - AgroParisTech - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement
Olivier Sassi: CIRED - centre international de recherche sur l'environnement et le développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - AgroParisTech - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement

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Abstract: This article explores the critical role of labour market imperfections in climate stabilisation costs formation. To do so, we use a dynamic recursive energy-economy model that represents a second best world with market imperfections and short-run adjustments constraints along a long-term growth path. We show that the degree of rigidity of the labour markets is a central parameter and we conduct a systematic sensitivity analysis of the model results to this parameter. When labour markets are represented as highly flexible, the model results are in the usual range of existing literature, i.e. less than 2% GDP losses in 2030 for a stabilisation target at 450ppm CO2 equivalent. But when labour markets rigidities are accounted for, mitigation costs increase dramatically. In a second time, the article identifies accompanying measures, namely labour subsidies, which guarantees against the risk of large stabilisation costs in the case of high rigidities of the labour markets. That vision complements the usual view that mitigation is a long-term matter that depends on technology, innovation, investment and behavioural change. Here we add the warning that mitigation is also a shorter-term issue and a matter of transition on the labour market.

Keywords: labour market rigidities; climate policies costs; second best world; sensitivity analysis; rigidités sur le marché du travail; coûts des politiques climatiques; monde " second best "; analyse de sensibilité (search for similar items in EconPapers)
Date: 2009-09
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00866429
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