To what extent can a worldwide carbon pricing foster the transition towards a low-carbon economy and help mitigate the effects of global warming?
On April 5, 2018, economist Gael Giraud discussed the macroeconomic impact of carbon pricing and public subsidies while evaluating the extent to which these policies are sustainable, during the seminar “Carbon Pricing and Global Warming: A Stock-flow Consistent Macro-dynamic Approach”.
This was done by computing the probability to remain below two thresholds that are critical for the stability of our current economy and climate: a temperature anomaly above +2°C (as set in the Paris Agreement); a global debt-to-output ratio.
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Results highlighted that the upper-bound of the carbon pricing corridor advocated in the High-Level Commission on Carbon Prices (2017), when implemented together with additional public subsidies on abatement costs in the private sector, succeeds in driving the economy into the neighborhood of a balanced growth path. With high probability, this would make it possible to cap the average Earth temperature deviation at below +2.5°C by the end of this century.
Absent such strong public involvement, the impact of climate change on gross output and capital appears to be powerful enough to almost surely pull the state of the world economy towards a debt-deflationary field, potentially leading to forced degrowth in the second half of the twenty-first century.