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Economic benefits of decarbonising the global electricity sector


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  • J. F. Mercure
  • P. Salas
  • A. Foley
  • U. Chewpreecha
  • H. Pollitt
  • P. B. Holden
  • N. R. Edwards


Conventional economic analyses of stringent climate change mitigation have generally concluded that economic austerity would result from carbon austerity. These analyses however rely critically on the assumption of an economic equilibrium, which dismisses established notions on behavioural heterogeneity, path dependence and technology transitions. Here we show that on the contrary, the decarbonisation of the electricity sector globally can lead to improvements in economic performance. By modelling the process of innovation-diffusion and non-equilibrium dynamics, we establish how climate policy instruments for emissions reductions alter economic activity through energy prices, government spending, enhanced investment and tax revenues. While higher electricity prices reduce income and output, this is over-compensated by enhanced employment generated by investments in new technology. We stress that the current dialogue on the impacts of climate policies must be revisited to reflect the real complex dynamics involved in the global economy, not captured by conventional models.

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Paper provided by in its series Papers with number 1310.4403.

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Date of creation: Oct 2013
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Handle: RePEc:arx:papers:1310.4403

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