Accelerating the green transition for a sustainable global economy

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Addressing the climate crisis in a way that advances sustainable development: the transition to a green economy is considered by scientists and policymakers alike the key to meet the climate targets by the end of this century. A study by CMCC researchers shows that the requirements of a successful green transition depend heavily on the speed of its implementation.

A successful green transition will require a dual approach: reallocating resources from unsustainable to sustainable economic activities and fostering endogenous growth in the capacity and productivity of sustainable endeavors.

Navigating this transition necessitates significant changes in the global production and consumption landscape to align with climate targets while sustaining economic development. However, the specifics of resource reallocation depend heavily on the assumptions made about the speed of the green transition.

A study recently published in Nature Communications Earth & Environment by a team of international researchers, led by CMCC scientists, indicates that achieving a rapid transition mandates significant and swift capital transfers, substantial efforts to reduce emissions from unsustainable activities, and a concentrated focus on research and development (R&D) to enhance the productivity of sustainable practices.

The paper, titled “An assessment of different transition pathways to a green global economy”, investigates alternative pathways for the transition of the global economy from one dominated by the fossil-fueled, brown, sector to one dominated by the low-emission, green, sector.

In particular, three different pathways are considered, each defined by the speed of the transition: constant (or linear), fast, and delayed.

The fast transition pathway heavily depends on capital transfers from “brown” to “green” economic activities, coupled with significant and early emission reduction measures in the “brown” sector.

“For a fast transition to succeed, a substantial level of resilience in the “brown” sector to bear this burden is also required,” says Severin Reissl, researcher at the RFF-CMCC-European Institute on Economics and the Environment (EIEE) and author of the paper. “By contrast, slower pathways involve a greater amount of investment and gradual capital accumulation within the “green” sector itself, mitigating some of the costs associated with reallocating capital between sectors but resulting in prolonged higher emissions.”

Notably, the study found consistently, across most scenarios, the necessity of directing all R&D efforts toward the “green” sector to enhance its productivity and effectively achieve the transition goals.

“DICE, the model from which we start, is a highly simplified framework,” says Reissl. Integrated assessment models (IAMs), including DICE, are essential tools for analyzing the economic impacts of climate change and evaluating the consequences of climate mitigation policies. They range from simple stylized versions to complex process-based models that incorporate detailed representations of factors such as energy systems, land use, and air pollution.

“While I typically work with more detailed and complex models, I believe that more stylised frameworks like our extended DICE model can be very useful in highlighting general but important points,” says Reissl.

The researchers made a number of key extensions and improvements along some important dimensions, including multiple sectors and R&D-driven productivity growth, to deliver additional insights whilst still keeping the overall model quite simple and manageable. The results of this paper emphasize the scale and direction of the efforts necessary to achieve a fast transition, and underline that stronger policy action is urgently needed.

“The successful transition to a green economy highly depends on the level of political commitment and technical capability within society,” says EIEE researcher Soheil Shayegh, another author of the paper. “However, the assumed pace of the transition has a strong impact on how such a transition will play out. Therefore, in designing green growth policies, it’s imperative for decision-makers to foresee necessary changes in the reallocation of resources, spanning from financial and physical capital to human resources to R&D activities.”

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Behind the Paper: What does it take for the global economy to go green?

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