Expecting The Unexpected: Macroeconomic Volatility And Climate Policy
AbstractTo estimate the emissions reductions and costs of a climate policy, analysts usually compare a policy scenario with a baseline scenario of future economic conditions without the policy. Both scenarios require assumptions about the future course of numerous factors such as population growth, technical change, and non-climate policies like taxes. The results are only reliable to the extent that the future turns out to be reasonably close to the assumptions that went into the model. In this paper we examine the effects of unanticipated macroeconomic shocks to growth in developing countries or a global financial crisis on the performance of three climate policy regimes: a globally-harmonized carbon tax; a global cap and trade system; and the McKibbin-Wilcoxen hybrid. We use the G-Cubed dynamic general equilibrium model to explore how the shocks would affect emissions, prices, incomes, and wealth under each regime. We consider how the different climate policies tend to increase or decrease the shock’s effect in the global economy and draw inferences about which policy approaches might better withstand such shocks. We find that a global cap and trade regime significantly changes the way growth shocks would otherwise be transmitted between regions while price-based systems such as a global carbon tax or a hybrid policy do not. Moreover, in the case of a financial meltdown, a price based system enables significant emissions reductions at low economic cost whereas a quantity target base system loses the opportunity for low cost emission reduction reductions because the target is fixed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2008-35.
Length: 48 pages
Date of creation: Oct 2008
Date of revision:
Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: http://cama.crawford.anu.edu.au
More information through EDIRC
Find related papers by JEL classification:
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
- Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Weitzman, Martin L, 1974.
"Prices vs. Quantities,"
Review of Economic Studies,
Wiley Blackwell, vol. 41(4), pages 477-91, October.
- Zhang, ZhongXiang & Löschel, Andreas, 2002.
"The Economic and Environmental Implications of the US Repudiation of the Kyoto Protocol and the Subsequent Deals in Bonn and Marrakech,"
ZEW Discussion Papers
02-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Andreas Löschel & Zhong Zhang, 2002. "The economic and environmental implications of the US repudiation of the kyoto protocol and the subsequent deals in Bonn and Marrakech," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(4), pages 711-746, December.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
- McKibbin, Warwick J. & Pearce, David & Stegman, Alison, 2007. "Long term projections of carbon emissions," International Journal of Forecasting, Elsevier, vol. 23(4), pages 637-653.
- Pezzey, John C.V., 2003.
"Emission Taxes and Tradable Permits: A Comparison of Views on Long Run Efficiency,"
2003 Conference (47th), February 12-14, 2003, Fremantle, Australia
58198, Australian Agricultural and Resource Economics Society.
- John Pezzey, 2003. "Emission Taxes and Tradeable Permits A Comparison of Views on Long-Run Efficiency," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(2), pages 329-342, October.
- John C. V. Pezzey, 2002. "EmissionTaxes and Tradable Permits: A Comparison of views on Long Run Efficiency," Economics and Environment Network Working Papers 0210, Australian National University, Economics and Environment Network.
- Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
- William D. Nordhaus, 2006. "After Kyoto: Alternative Mechanisms to Control Global Warming," American Economic Review, American Economic Association, vol. 96(2), pages 31-34, May.
- von Below, David & Persson, Torsten, 2008.
"Uncertainty, Climate Change and the Global Economy,"
757, Stockholm University, Institute for International Economic Studies.
- David von Below & Torsten Persson, 2008. "Uncertainty, Climate Change and the Global Economy," NBER Working Papers 14426, National Bureau of Economic Research, Inc.
- Persson, Torsten & von Below, David, 2008. "Uncertainty, Climate Change and the Global Economy," CEPR Discussion Papers 7024, C.E.P.R. Discussion Papers.
- Frankel, Jeffrey, 2007. "Formulas for Quantitative Emission Targets," Working Paper Series rwp07-011, Harvard University, John F. Kennedy School of Government.
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
- Marschinski, Robert & Flachsland, Christian & Jakob, Michael, 2012. "Sectoral linking of carbon markets: A trade-theory analysis," Resource and Energy Economics, Elsevier, vol. 34(4), pages 585-606.
- Valentina Bosetti & Jeffrey A. Frankel, 2009.
"Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 ppm CO2 Concentrations,"
NBER Working Papers
15516, National Bureau of Economic Research, Inc.
- Valentina Bosetti & Jeffrey Frankel, 2009. "Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 ppm CO2 Concentrations," Working Papers 2009.92, Fondazione Eni Enrico Mattei.
- Yingying Lu & Alison Stegman & Yiyong Cai, 2012.
"Emissions Intensity Targeting: From China's 12th Five Year Plan to its Copenhagen Commitment,"
CAMA Working Papers
2012-45, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Lu, Yingying & Stegman, Alison & Cai, Yiyong, 2013. "Emissions intensity targeting: From China's 12th Five Year Plan to its Copenhagen commitment," Energy Policy, Elsevier, vol. 61(C), pages 1164-1177.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cama Admin).
If references are entirely missing, you can add them using this form.