Coping with the Collapse: A Stock-Flow Consistent Monetary Macrodynamics of Global Warming - Updated version dated July 2017

This paper presents a macroeconomic model of growth that combines the economic impact of climate change with the pivotal role of private debt and income distribution. Using a Keen approach (Keen, 1995) based on the Lotka-Volterra logic, we couple its nonlinear monetary dynamics of underemployment and income distribution with abatement costs. Various damage functions reflect the loss in final production and capital due to the rise in temperature. A calibration of our model at the world scale enables us to simulate various planetary scenarios. Our findings are threefold: 1) the +2°C target is already out of reach, absent negative emissions; 2) the long-run dynamic consequences of climate change on economic fundamentals may lead to a severe downside. Under plausible circumstances, global warming forces the private sector to leverage in order to compensate for output and capital losses; the private debt overhang may eventually induce a global financial breakdown, even before climate change could cause serious damage to the production sector. 3) Implementing an adequate carbon price trajectory, as well as increasing the wage share, fostering employment, and reducing private debt make it easier to avoid unintended degrowth and to reach a +2.5°C C target.