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A macroeconomic perspective on climate change mitigation: Meeting the financing challenge

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  • Alex Bowen
  • Emanuele Campiglio
  • Massimo Tavoni

Abstract

Transitioning to a low-carbon economy will require significant investment to transform energy systems, alter the built environment and adapt infrastructure. A strategy to finance this investment is needed if the limit of a 2�C increase in global mean temperatures is to be respected. Also, high-income countries have pledged to pay the �agreed full incremental costs� of climate-change mitigation by developing countries, which are not necessarily the same as incremental investment costs. Building on simulations using Integrated Assessment Models and historical evidence, this paper explores some of the issues posed by this dual financing challenge. We discuss the fiscal self-reliance of the energy sector, finding that carbon pricing would generate sufficient fiscal revenues within each region to finance total energy investment. Even when allowing for trade in emission permits regional carbon fiscal revenues should still suffice to cover both their own energy sector investment and permit purchases from abroad. We show that incremental investment (and saving) needs are well within the range of past variation, and argue that the challenge is rather to ensure that the revenues are complemented by investment in the appropriate sectors. But fairness and equity are likely to warrant transfers from advanced industrial countries to developing nations.

Suggested Citation

  • Alex Bowen & Emanuele Campiglio & Massimo Tavoni, 2013. "A macroeconomic perspective on climate change mitigation: Meeting the financing challenge," GRI Working Papers 122, Grantham Research Institute on Climate Change and the Environment.
  • Handle: RePEc:lsg:lsgwps:wp122
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    Cited by:

    1. Sarah Wolf & Franziska Schütze & Carlo C. Jaeger, 2016. "Balance or Synergies between Environment and Economy—A Note on Model Structures," Sustainability, MDPI, vol. 8(8), pages 1-11, August.
    2. Xun Liu & Xiaoliang Yu & Simon Gao, 2019. "A quantitative study of financing efficiency of low‐carbon companies: A three‐stage data envelopment analysis," Business Strategy and the Environment, Wiley Blackwell, vol. 28(5), pages 858-871, July.
    3. Johannes Pfeiffer, 2017. "Fossil Resources and Climate Change – The Green Paradox and Resource Market Power Revisited in General Equilibrium," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 77.
    4. Kober, Tom & Summerton, Philip & Pollitt, Hector & Chewpreecha, Unnada & Ren, Xiaolin & Wills, William & Octaviano, Claudia & McFarland, James & Beach, Robert & Cai, Yongxia & Calderon, Silvia & Fishe, 2016. "Macroeconomic impacts of climate change mitigation in Latin America: A cross-model comparison," Energy Economics, Elsevier, vol. 56(C), pages 625-636.
    5. Alex Bowen & Emanuele Campiglio & Sara Herreras Martinez, 2015. "The ‘optimal and equitable’ climate finance gap," GRI Working Papers 184, Grantham Research Institute on Climate Change and the Environment.
    6. Diniz Oliveira, Thais & Costa Gurgel, Angelo & Tonry, Steve, 2021. "Potential trading partners of a brazilian emissions trading scheme: The effects of linking with a developed region (Europe) and two developing regions (Latin America and China)," Technological Forecasting and Social Change, Elsevier, vol. 171(C).
    7. Rezai, Armon & Stagl, Sigrid, 2016. "Ecological Macreconomics: Introduction and Review," Ecological Economic Papers 9, WU Vienna University of Economics and Business.
    8. Campiglio, Emanuele, 2016. "Beyond carbon pricing: The role of banking and monetary policy in financing the transition to a low-carbon economy," Ecological Economics, Elsevier, vol. 121(C), pages 220-230.
    9. Diniz Oliveira, Thais & Gurgel, Angelo & Tonry, Steve, 2018. "The Effects for Brazil of Linking Emissions Trading Schemes in the context of the Heterogeneity of Trading Partners," Conference papers 332951, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    10. Arango-Aramburo, Santiago & Turner, Sean W.D. & Daenzer, Kathryn & Ríos-Ocampo, Juan Pablo & Hejazi, Mohamad I. & Kober, Tom & Álvarez-Espinosa, Andrés C. & Romero-Otalora, Germán D. & van der Zwaan, , 2019. "Climate impacts on hydropower in Colombia: A multi-model assessment of power sector adaptation pathways," Energy Policy, Elsevier, vol. 128(C), pages 179-188.
    11. Ulrike Kornek & Jan Christoph Steckel & Kai Lessmann & Ottmar Edenhofer, 2017. "The climate rent curse: new challenges for burden sharing," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 17(6), pages 855-882, December.
    12. Dalia Streimikiene & Grigorios L. Kyriakopoulos & Vidas Lekavicius & Indre Siksnelyte-Butkiene, 2021. "Energy Poverty and Low Carbon Just Energy Transition: Comparative Study in Lithuania and Greece," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 158(1), pages 319-371, November.
    13. Jérôme Hilaire & Jan C. Minx & Max W. Callaghan & Jae Edmonds & Gunnar Luderer & Gregory F. Nemet & Joeri Rogelj & Maria Mar Zamora, 2019. "Negative emissions and international climate goals—learning from and about mitigation scenarios," Climatic Change, Springer, vol. 157(2), pages 189-219, November.

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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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