Global Economic and Environmental Outcomes of the Paris Agreement

51 Pages Posted: 17 Jan 2019

See all articles by Weifeng Liu

Weifeng Liu

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Warwick J. McKibbin

Australian National University

Adele C. Morris

The Brookings Institution

Peter J. Wilcoxen

Brookings Institution

Date Written: January 17, 2019

Abstract

In this paper, we use a multi-region model of the world economy to analyze the economic and environmental outcomes that are likely to result from Paris Climate Agreement. To construct the modeling scenario, we convert the disparate emission targets for each country or region in their Nationally Determined Contributions (NDC) formulations into estimated reductions in CO2 emissions relative to a baseline scenario with no new climate policies. We then solve for the tax rate path on CO2 in each region that achieves the NDC-consistent emissions reductions in the target year, 2030 for most regions.

We find that if all regions achieve their NDCs, the Paris Agreement significantly reduces CO2 emissions relative to baseline. However, the Paris policy scenario suggests that global CO2 emissions would not decline in absolute terms relative to 2015 levels, let alone follow a path consistent with a 2°C stabilization scenario.

Comparing projected 2030 CO2 tax rates to the same year’s percent emissions abatement relative to baseline, we find that declines in CO2 emissions do not necessarily correlate with the CO2 tax rate. We find the climate policies result in significant macroeconomic spillovers across the global economy, meaning that macroeconomic outcomes across countries depend not only on their own commitments but also on those of the rest of the world.

We also explore how outcomes could change if select countries (United States, China and Australia) unilaterally withdraw from the agreement and undertake no new climate policies. We find that non-participation leads to economic gains (in terms of GDP) for these countries relative to participating, illustrating the challenge of forging an international agreement with participation by all major emitters and fossil fuel producers. However, we also find that if we account for the monetized climate and domestic co-benefits of emissions reductions, those countries, including Australia, are worse off if they unilaterally withdraw from the Paris Agreement than if they participate. Thus, although we find there are gross costs to participating, doing so generates net benefits for the individual country participants.

Keywords: climate change, Paris Climate Agreement, global macroeconomic modeling, G-Cubed, carbon taxes

JEL Classification: C54, F17, F41, F47, Q43, Q54

Suggested Citation

Liu, Weifeng and McKibbin, Warwick J. and Morris, Adele C. and Wilcoxen, Peter J., Global Economic and Environmental Outcomes of the Paris Agreement (January 17, 2019). CAMA Working Paper No. 04/2019, Available at SSRN: https://ssrn.com/abstract=3317263 or http://dx.doi.org/10.2139/ssrn.3317263

Weifeng Liu

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

Crawford School of Public Policy
Canberra, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://cama.crawford.anu.edu.au/

Warwick J. McKibbin (Contact Author)

Australian National University ( email )

Crawfrod School of Public Policy
Canberra, ACT 2600
Australia
02-61250301 (Phone)
02-62735575 (Fax)

HOME PAGE: http://www.sensiblepolicy.com

Adele C. Morris

The Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/morrisa.aspx

Peter J. Wilcoxen

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/wilcoxenp.aspx

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