2022/39 | LEM Working Paper Series | ||||||||||||||||
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Beyond climate economics orthodoxy: impacts and policies in the agent-based integrated-assessment DSK model |
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Francesco Lamperti and Andrea Roventini |
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Keywords | |||||||||||||||||
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climate policy; climate risks; macroeconomic dynamics; agent-based modelling.
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JEL Classifications | |||||||||||||||||
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C63, Q40, Q50, Q54
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Abstract | |||||||||||||||||
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Though climate physical and transition risks will likely affect socio-economic dynamics along any
transition pathways, their unfolding is still poorly understood. This also affects the development of
climate-change policies to achieve sustainable growth. In this paper, we discuss a series of results
assessing the materiality of climate risks for economic and financial stability and alternative policy
pathways by means of the Dystopian Schumpeter meeting Keynes (DSK) agent-based integrated assessment
model. Our results suggest the emergence of tipping points wherein physical risks under unmitigated
emissions will reduce long-run growth and spur financial and economic instability. Moreover, diverse
types of climate shocks have a different impact on economic dynamics and on the chances of observing
a transition to carbonless growth. While these results call for immediate and ambitious interventions,
appropriate mitigation policies need to be designed. Our results show that carbon taxation is not the
most suitable tool to achieve zero-emission growth given its huge economic costs. On the contrary,
command-and-control regulation and innovation policies to foster green investments is the best policy
mix to put the economy on a green growth pathway. Overall, our results contradict the standard tenets
of cost-benefit climate economics and suggest the absence of any trade-off between decarbonization
and growth.
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