Presenter: Gael Giraud, Chief economist of the Agence Française de Développement, Professor at the Ecole Nationale des Ponts et Chaussées
Moderator: Carlo Carraro, Professor at Ca’ Foscari University of Venice, IPCC WG3 Vice-Chair, CMCC@Ca’Foscari
Discussant: Francesco Bosello, Director of ECIP Division, Fondazione CMCC – Centro Euro-Mediterraneo sui Cambiamenti Climatici; Associate Professor at Statale University of Milan
To what extent can a worldwide carbon pricing foster the transition towards a low-carbon economy and help mitigate the effects of global warming? The seminar will discuss the macroeconomic impact of carbon pricing and public subsidies and evaluate the extent to which these policies are sustainable. This is done by computing the probability to remain below two thresholds that are critical for the stability of our current economy and climate: 1) a temperature anomaly above +2°C (as set in the Paris Agreement) and 2) a global debt-to-output ratio.
We find 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 neighbourhood 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, and provided it be captured through a sufficiently convex damage function, 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. Such a flow of trajectories is characterised on shorter time scales by low growth, the rise of unemployment as well as private debt, low inflation and interest rates, together with a declining wage share. A stock-flow consistent, financial and non-linear macrodynamics with uncertainty, calibrated for the world economy is used for this analysis.
Working language: English
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Professor Gaël Giraud
Gaël Giraud is a CNRS researcher in economy specialized in the theory of general equilibrium, game theory, finance and energy issues. He is chief economist of the Agence Française de Développement, Professor at the Ecole Nationale des Ponts et Chaussées et director of the Chair Energy and Prosperity. He was also a member of the Steering Committee for Energy Transition in the French government and of the Stern-Stiglitz high-level commission on carbon tarification. Gael is a former student of the Ecole Normale Supérieure Paris and the National School of Statistics and Economic Administration. He obtained his PhD (1998) in mathematic at the Ecole Polytechnique. In 2009, he was named « Best Young French Economist » by Le Monde / Le Cercle des économistes.