Achieving the G8 50% target: modelling induced and accelerated technological change using the macro-econometric model E3MG

• Published in: Climate policy 2008-01, Vol.8 (sup1), p.S30-S45
• Main Authors: BARKER, TERRY, SCRIECIU, S. SERBAN, FOXON, TIM
• Format: Article
• Language: English
• Subjects: 50% target; Adoption of innovations; Agreements; Auctions; Carbon; Carbon dioxide; Carbon dioxide emissions; Carbon emissions; Carbon offsets; carbon pricing; changement technologique induit; Climate change; Computer simulation; de 50% du G8; Dietary supplements; Econometric models; Econometrics; Economic development; Economic growth; Economic models; Economic policy; Economics; Economies of scale; Electric vehicles; Energy; Energy industry; Energy policy; Energy sector; Environmental policy; Environmental tax; Feasibility studies; Financing; fixation du prix du carbone; Fossil fuels; G-8; G8 CO; GDP; global economy model; Greenhouse gases; Gross Domestic Product; Growth models; Guanosine diphosphate; induced technological change; International organizations; Investment; Investments; l'objectif de réduction de CO; low-carbon society; Macroeconomics; Modelling; modèle de l'économie mondiale; modélisation de scenarios; New technology; Policies; Prices; R&D; Recycling; Reduction; reductions; Research & development; réductions de GES; scenario modelling; Simulation; société sobre en carbone; Studies; Tax revenues; Taxation; Taxes; Technological change; Technology; Technology adoption; Transport; Transportation
• ISSN: 1469-3062; 1752-7457
• DOI: 10.3763/cpol.2007.0490

This article assesses the feasibility of a 50% reduction in CO 2 emissions by 2050 using a large-scale Post Keynesian simulation model of the global energy-environment-economy system. The main policy to achieve the target is a carbon price rising to $100/tCO 2 by 2050, attained through auctioned CO 2 permits for the energy sector, and carbon taxes for the rest of the economy. This policy induces technological change. However, this price is insufficient, and global CO 2 would be only about 15% below 2000 levels by 2050. In order to achieve the target, additional policies have been modelled in a portfolio, with the auction and tax revenues partly recycled to support investment in low-GHG technologies in energy, manufacturing and transportation, and 'no-regrets' options for buildings. This direct support supplements the effects of the increases in carbon prices, so that the accelerated adoption of new technologies leads to lower unit costs. In addition the $100/tCO 2 price is reached earlier, by 2030, strengthening the price signal. In a low-carbon society, as modelled, GDP is slightly above the baseline as a consequence of more rapid development induced by more investment and increased technological change.